Quite a long time ago people in the service trades realized they weren’t making the profit margins that they needed to. One of the solutions to that problem was to start using flat rate pricing for repairs. Aside from that another soft spot in the profitability picture was that our forbears discovered that they weren’t making much money on their parts markup and sales. After deducting the cost of breakage, loss, warranties, obsolescence, carrying costs, and inventories there wasn’t much money left over. An early proponent of fixing this problem was Frank Blau. He understood that the markup on expensive parts were just fine because the dollar amount was high and the margins would take care of themselves. If you were to markup a $125 motor 100% (that’s $125 x 2 for a selling price of $250) you would have a $125 profit on that part. That would be enough to take the whole family out to dinner (even after you take out some money for overhead).
The problem with making money on HVAC part markups is that the majority of parts sales are smaller, inexpensive parts. Those parts are the ones that are more likely to get lost, broken or included in a job without getting billed for. On top of that the dollar amount of the markup is also quite small. Let’s mark a $2 filter up 100%. How many kids you gonna feed with that $2 you just made?
Mr. Blau, a contractor and business consultant, became an early proponent of doing part markups on a sliding scale. Using this type of scale inexpensive parts are marked up 4 or 5 times their cost, while expensive parts might only be marked up 1-½ or 2 times. Mr. Blau had some success selling this idea around the nation. So much so that it has become the most common method for marking up parts in the service industry; and a variation of that method became the basis for Coolfront Books parts markup chart:
One small shortcoming of using a parts markup chart is that parts that have costs near the markup boundaries can have odd results. For instance, based on the schedule above a part that costs $9.95 would get multiplied by 3 for a selling price of $29.85. A part that cost $10.15 would get multiplied by 2.75 for a selling price of $27.91; a result that has the more expensive item selling for less than the cheaper item.
When it came time to apply this markup principle to Coolfront Mobile our designers decided to create a schedule that was more elegant than the 9 tiered one that you see above. With the Coolfront Mobile HVAC parts markup chart the multiplier changes in very small increments as the price of the part gets higher; no more prices where the cheaper item sells for more than the more expensive one!
A graph of the schedule looks something like this, it’s more of a smooth line. All you need to do is give our system the low end markup and the high end markup and Coolfront will do the rest.
Let’s do a few examples. First, I’m going to set the goal posts at 1.5 x anything over $200, and 5 x anything that is $1 or less:
Each repair price gets it’s own markup based on where it falls along the markup line. All that’s needed to get consistent markups is enter the multiplier at either goal post and let Coolfront Mobile do the rest.
About the Author
My name’s Jim Knapp, in the office they call me Jim. I don’t know where they got that one from, but it suites me. I’m partial to being outside, regardless of the season. As long as I can remember I’ve been a tree freak. Being older I’ve stopped climbing them, but I spend a lot of time trying to identify & learn about them. In that vein my favorite hobbies are hiking & kayaking. A great place to do those things is Acadia National Park in Maine.More Content by Jim Knapp