CHARGE OUT RATES
An Updated Guide to
Calculating Charge Out Rates for Your Plumbing and Gas Business With supply chain issues and recent price increases, all businesses should be reviewing their charge out rates. MPAQ is concerned about the recent price increases for products and materials being experienced in the plumbing and gas industry. We would like to ensure the industry can prepare as much as possible, so recently we asked our corporate associates to advise what they are forecasting in potential increases over the next 12, 24, and 36 months. The feedback from manufacturers and suppliers broadly states that: • All plastics are increasing and, potentially, will increase again by double digits in the next 12 months • 7-9% increase on flexible connectors in the next 12 months • Considerable increases in stainless steel based products due to global issues • Some manufacturers are experiencing problems obtaining raw materials and with freight price increases, which are causing delays. Some base materials are increasing by double digits • Copper is at an all time high; therefore, suppliers who require this material will be forced to increase their pricing Undercharging is easy to do if you do not start with the correct cost base. In collaboration with Xact Accounting, MPAQ has updated our guide to calculating charge out rates to assist with the growth and profitability of your plumbing and gas business. Is your business finding it difficult to establish a fair charge out rate? Are you struggling to balance profitability with competitiveness? This guide is designed for industry to help you understand how you can ensure your business is a profitable one. Many
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| MASTER PLUMBER MAGAZINE Winter 2022
businesses go under because they are charging less than what is required to cover the costs of their business and a wage for themselves and/or their employees. Many operators do not fully understand the difference between a margin and mark-up. This can lead to minimal business profits and, universally, overheads not being covered. Plumbing and gas businesses sell two main items: labour, and materials. Both take time and money to manage, and both need to be marked up to cover their true cost and to allow for a profit margin. The management of materials requires trade accounts, timely payments to suppliers, time taken to source, specify, store, transport, and return unused items, etc. There is also your administration time to reconcile dockets and accounts, as well as other general business expenses to operate (overheads).
Cost Base for Your Charge Out Rates • Determine the full cost of your labour. • Add a mark up to your actual cost. • Add a mark up to your materials.
Calculate Your Margin A 40% gross margin is an ideal target for a plumbing and gas business according to industry standards. You can use the Margin and Mark-up Table in your copy of the Guide. Finding your desired margin in the table, you will be given a mark-up percentage, which can be multiplied by your cost base to give you your desired charge out rate. For more information, examples, and to view the margin and mark-up table, check out the MPAQ Guide to Calculating Charge Out Rates. You can access a digital copy at www.mpaq.com.au, including a templated letter, which you can provide to your clients about increasing your prices. If you have any questions, please contact MPAQ on 07 3273 0800.
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