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Long and Short Markups - Under…
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Last modified on 9/28/2012 8:47 AM by User.

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Long and Short Markups - Understanding the Math OASIS Uses

 

This document identifies the differences between long and short markup and identifies a few examples of when the different markups should be used

Definitions

Consider a product that costs $100.00:

A “short” markup of 25% is simply taking $100.00 times 1.25 which is $125.00.

A “long” markup of 25% is calculated by taking $100.00 divided by 1 – .25
                or $100 / .75
                which is $133.33

On the OASIS quote, the formula columns assume the following:
                any value less than 2 is a short markup
                any value equal to or greater than 2 is long markup

Why two markups?

The quick answer is that if you use a short markup and later “give back” a percentage to the customer, you could very well lose money on the job.

The correct way – long mark up, short mark down:

                $100 cost with 25% long markup is $100/.75 or $133.33
                $133.33 with a 25% discount is $133.33 * .25 or $33.33 resulting in a final price of $100

 CAUTION – BE VERY CAREFUL IF YOU DO THIS!
Short mark up and short mark down
                $100 cost with 25% short markup is $100 * 1.25 or $125.00
                $125.00 with a 25% discount is $125.00 * .25 or $31.25 or $93.75
                YOU JUST LOST MONEY!

Example

For most quotes departments, the cost of the material is marked up a percentage using long math. Then outside sales is told “we have 25 percent” on the job. This allows sales to negotiate by giving a discount to the customer. For example:

We start with a cost of $100, marking the job up 25% (long) making the sell price of the job $133.33

To close the job, sales gives the customer a 20% discount, leaving 5% markup on the job.

The customer now has a price of $133 and they calculate a 20% discount of $26.6 and an expectation that the final quote for the job will be $106.40.

Quotes will now take their price and make the same calculation. NOTE do not reduce the long markup from 25% to 5% - this is not the same. Instead, take the price you have now and add a new column with a formula of .75. The result will be $106.40.

Using long markup is safe and allows sales to negotiate using percentages instead of hard dollar values that can get confusing – especially with varying contractor counts or changes on the project. As shown above, if this job was marked up using a “short” 25%, then giving the customer a discount of only 20% would result in the company breaking even. A discount of 21% results in a loss of $1.25. A discount of 25% results in a loss of $6.25. On small jobs, this will literally “nickel and dime” you out of business. On large jobs with big quantities, you might agree to give the customer hundreds of thousands of dollars.