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Long and Short Markups
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Last modified on 8/17/2015 9:27 AM by User.

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Long and Short Markups

When we initially created OASIS, the input from all the representative advisory team was to use “long” math when marking up jobs. Users said during the bidding process, marking up jobs, revising bids and reducing (giving back) on jobs many times cost them profit. To help prevent this, long math what we followed. 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 whose Sell Price $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

In the Example below:

-          Line 1 (Type A) is the default markup used in OASIS, 25 (25%)

-          Line 2 (Type B) is manually using a “short” markup – type in 1.25

 

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 best 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

Short Markup way - CAUTION – BE VERY CAREFUL IF YOU DO THIS!

                $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 losing $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.