This falls apart when you read your builders contracts. All standard builders contracts for cost plus specifically state that builders margin is applied directly to costs. That’s actually why it’s called, wait for it. Cost. Plus. Not cost plus plus. If you do this, you will need a varied standard contract. And you would still be effectively charging 25% margin. This guy is accurately describing the definition of margin. But definitely not in the context of standard law.
I am very intrigued with your margin calculation, I can't seem to get past the "appearance" of looking like 25%. can you help me understand why it's actually 20%?
Hi Brad, Thanks for your interest. In the accounting world, Margin is different to Markup. The 25% you are looking at is Markup. Please take a look at the video from about the 3:30min mark or visit the web page here for some written examples. www.integrityfranchising.com.au/news/article/what-is-the-right-builders-margin
I feel the easiest way to understand the difference between mark up and margin is this. Use the example in the video of 20% mark up on a $120,000 project $20,000 profit divided by $100,000 (Builder Cost) = 20% mark up $20,000 profit divided by $120,000 (Homeowner/project Cost) = 16.67% margin
The best way to understand is to apply a discount. So for the typical contractor who thinks 120k is 20% margin on the job. Say you gave a 20% discount, what would be the clients cost? 120K X .8 = 96K. Same example 100K divided by .8 = 125K. Discount 125K by .8 and you get back to 100K. Math doesn’t lie!
Nice try but definitely a flawed approach and math. Definitely NOT a 20% margin. Mathematical slight of hand to trick a client into believing it is somehow TRUE 20% margin. Doesn’t matter if you call it % margin, % fees, % interests, % bonus, it all calculates the same. I’m sure you don’t use that approach when it comes to paying your taxes.
lol... by definition, he is absolutely correct in his calculation of profit margin. No doubt about that. His math is right and it is not a flawed approach.
I would rather use this method than kust marking up. Because when you use discount. You can easily discount in the faces of the customers.
This falls apart when you read your builders contracts. All standard builders contracts for cost plus specifically state that builders margin is applied directly to costs. That’s actually why it’s called, wait for it. Cost. Plus. Not cost plus plus. If you do this, you will need a varied standard contract. And you would still be effectively charging 25% margin. This guy is accurately describing the definition of margin. But definitely not in the context of standard law.
IF your doing cost plus
I am very intrigued with your margin calculation, I can't seem to get past the "appearance" of looking like 25%. can you help me understand why it's actually 20%?
Hi Brad, Thanks for your interest. In the accounting world, Margin is different to Markup. The 25% you are looking at is Markup. Please take a look at the video from about the 3:30min mark or visit the web page here for some written examples. www.integrityfranchising.com.au/news/article/what-is-the-right-builders-margin
I feel the easiest way to understand the difference between mark up and margin is this. Use the example in the video of 20% mark up on a $120,000 project
$20,000 profit divided by $100,000 (Builder Cost) = 20% mark up
$20,000 profit divided by $120,000 (Homeowner/project Cost) = 16.67% margin
The best way to understand is to apply a discount. So for the typical contractor who thinks 120k is 20% margin on the job. Say you gave a 20% discount, what would be the clients cost? 120K X .8 = 96K. Same example 100K divided by .8 = 125K. Discount 125K by .8 and you get back to 100K. Math doesn’t lie!
@williamregan1200 , of all the feedback yours was the easiest to comprehend. Are you a developer yourself, and how can I connect with you??
Nice try but definitely a flawed approach and math. Definitely NOT a 20% margin. Mathematical slight of hand to trick a client into believing it is somehow TRUE 20% margin. Doesn’t matter if you call it % margin, % fees, % interests, % bonus, it all calculates the same. I’m sure you don’t use that approach when it comes to paying your taxes.
lol... by definition, he is absolutely correct in his calculation of profit margin. No doubt about that. His math is right and it is not a flawed approach.
His math is 100% correct!