By The New Flat Rate
Your markup percentage can look right on paper and still lose money because markup only measures what you add to a cost. It doesn't automatically account for the true cost of delivering the job—labor, non-billable time, overhead, callbacks, risk, and the profit your company actually needs.
That means your math can be completely correct and your price can still be wrong.
Your markup may not be broken at all.
It may be working exactly the way you designed it to.
Markup and profit margin aren't the same thing.
If a part costs $100 and you apply a 50% markup, the selling price becomes $150. You added $50 to a $100 cost, so your markup is 50%.
But you didn't make a 50% profit.
That $50 is only 33.3% of the final selling price, and the company still has expenses associated with delivering the service.
The truck needs to get there. The technician needs to be paid. Someone answered the phone and scheduled the call. There's insurance, fuel, training, software, marketing, tools, warranty work, and the occasional callback.
That's where a markup percentage that looks healthy on a spreadsheet can begin to fall apart in the field.
As we explain in Contractor Pricing: The Hidden Reason You Lose Jobs!, the price of a service has to account for much more than the material being installed.
The customer isn't buying the part. They're paying for the company capable of installing it.
Imagine an electrical contractor buys a component for $40.
The natural question is:
"What should I mark this up?"
But think about everything that had to happen before that $40 component ended up in someone's home.
Someone answered the phone. Someone scheduled the call. A trained electrician climbed into a stocked, insured vehicle and drove to the customer's house. The company paid that electrician while they were driving. It paid for their tools, training, licensing, insurance, and benefits.
And if something goes wrong three days later, the company is probably the one sending someone back.
The $40 component may actually be one of the cheapest parts of delivering the service.
Yet many pricing models start with the cost of that part and expect a percentage to somehow absorb everything else.
That's where the math can drift away from reality.
Labor creates another dangerous assumption.
You might pay a technician for eight hours, but you don't necessarily have eight hours to sell.
They drive between calls. They attend meetings. They load the truck. They complete paperwork. They make supply-house runs. A customer cancels. Dispatch has a gap. Yesterday's job creates a callback.
None of those things stop payroll.
You still bought eight hours of the technician's time.
Maybe you only sold five.
If your pricing assumes those two numbers are basically the same, the spreadsheet can tell you you're profitable while your bank account tells a different story.
And that's not just a labor problem. It's one of several places revenue can disappear between the price book and the field. We cover more of those in The HVAC Pricing Guide: 8 Bottlenecks That Are Costing You Revenue.
Because every job doesn't cost your company the same way.
One job might have expensive materials and take very little technician time. Another might use a cheap part but require an hour of diagnosis, a trip to the supply house, and several hours of labor.
A percentage doesn't understand the difference.
It doesn't know that one job has a higher callback risk. It doesn't know that another requires your most experienced technician. It doesn't know that one repair occupied a truck for half the day.
The percentage only knows the number you gave it.
That's the bigger problem with asking, "What's the right markup?"
We're trying to find one percentage that can answer a much more complicated question:
What does this job actually need to produce for my company?
This is where slightly bad pricing becomes dangerous.
With one truck, you can hide a lot.
The owner works extra hours. Overhead stays relatively low. Maybe the owner isn't paying themselves correctly. A few great jobs compensate for the bad ones.
Then the company grows.
You add a technician and another truck. Then a CSR. Then software. Then more advertising. Eventually you need management.
Revenue goes up.
But if every job was slightly underpriced before you grew, you're now doing more underpriced jobs.
You didn't fix the problem. You scaled it.
That's why growth and profitability aren't necessarily the same thing. The Truth About Growing an Electrical Business looks deeper at why adding trucks, employees, and revenue can create a larger company without necessarily creating a healthier one.
You can't scale your way out of bad unit economics.
Here's the uncomfortable possibility:
Nothing is wrong with your markup.
Your calculator may be calculating perfectly.
Your price book may be doing exactly what you told it to do.
The problem is what you told it.
If you tell the system that a technician produces eight billable hours when they really produce five, it uses eight.
If your overhead estimate is too low, it uses the number you gave it.
If your desired profit isn't properly built into the model, the calculator can't invent it for you.
And there's another assumption that doesn't come from accounting at all.
It comes from fear.
"Nobody around here will pay that."
A contractor can calculate what the company actually needs to charge, see the result, and immediately decide the number is too high.
So they start changing the math.
Maybe labor gets underestimated. Maybe overhead gets trimmed. Maybe the markup gets reduced.
Eventually, the spreadsheet produces a number that feels comfortable.
But the actual cost of running the company didn't change.
Now the price isn't based on what the company needs. It's based on what the owner believes the customer will tolerate.
That's a very different thing.
Contractor Pricing: The Hidden Reason You Lose Jobs! goes deeper into why simply trying to be cheaper doesn't necessarily make you easier to buy from.
If you want to understand how customers actually respond to price, and why the same number can feel fair in one format and outrageous in another, the Pricing Playbook: The Psychology of Pricing breaks down exactly that.
There isn't one percentage that guarantees profitability for every contractor.
A company with different labor efficiency, overhead, service mix, callback rate, market, and profit requirements shouldn't necessarily use the same pricing structure as the company down the road.
That's why instead of asking:
"What's the right markup?"
Start asking:
"What does this job need to produce for my company?"
That changes the conversation.
Now you're looking at what it actually costs to employ the technician, how much of their time you can realistically sell, what it costs to keep the company operating, what risk the job carries, and what needs to remain after those costs are covered.
If you're building or revisiting the larger financial model behind the company, How to Write an Electrical Business Plan in 10 Steps provides a broader framework for connecting those numbers to the business you're trying to build.
Markup can absolutely be part of that model.
It just shouldn't be mistaken for the model itself.
The old belief sounds reasonable:
"If my markup percentage is right, my pricing is right."
But there's a better way to think about it:
"Markup only works when the assumptions underneath it match what actually happens in my business."
That's the shift.
Your price book might not be broken.
Your markup might not be wrong.
Your calculator might be working perfectly.
Before changing any of them, look underneath the percentage.
How many hours are you actually selling?
What does it really cost to put your technician at the customer's home?
What does each job need to contribute to the company?
And what assumptions did you make when you built the price in the first place?
Because if those assumptions are wrong, changing the percentage isn't fixing the problem.
It's just changing the math.
Want to see how customers actually respond to what they're paying?
Grab the free, downloadable Pricing Playbook: The Psychology of Pricing and price with more than just a calculator.