A few years ago, I wrote a column in
which I tried to clear up some of
the confusion surrounding the terms
"mark up" and "margin" (Business
Forum, 2/95). In that article, I explained
that many contractors who use a multiplier
to "mark up" their estimated costs
actually underprice their jobs by 5% or
more. I suggested throwing out the term
"mark up" in favor of "gross profit margin,"
and I provided a method for arriving
at the proper selling price that uses
a divisor.
Since then, however, I've talked with
many builders and remodelers who are
still confused, not only about how to calculate
gross profit but also about how the
resulting percentage relates to estimated
costs