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Money / Pricing strategy

Pricing strategies: How to calculate a mark up

Our earlier article gave an overview of the mark up principle. Now let's take a look at mark ups in action and how to calculate a mark up.

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The brief

Your client engages you to manage the design and implementation of a new website. They want you to source and manage the necessary suppliers on their behalf.

Your management fee for this project can come in the form of a mark up on the cost of these suppliers. This will ensure you’re adequately compensated for the time it takes to supervise and manage the project.

The suppliers

You have passed on relevant parts of your client’s brief on to the following suppliers, who you will be overseeing:

Sophie is a web designer you have worked with for ten years and is, in your view, the best in the industry. For her part in the project, she will charge $5,000.

Mike is the copywriter. You have been working with him for eight years. He will cost $2,000.

"If you design a table, you will have a template at your fingertips to ensure that whenever you are preparing a quote for your clients, it will prompt you consider what and how much to mark up."

Clive the photographer is a new contact and this is the first time you are working with him. He will cost $3,000.

The webmaster Nick, who you have worked with for two years, has a multitude of skills and will cost $4,000.

Your administration expenses are $500.

The client has a tight deadline, so you will be pushed to achieve the results within the timeframe given.

Want more articles like this? Check out the pricing strategy section.

How to calculate the mark up

Mark up on Sophie and Mike’s costs will reflect the synergy and depth of your working relationship, which the client does not have. A mark up of around 50% could be applied.

As it is the first time you are working with Clive, you may need to invest more time into your brief and negotiation process, and also additional supervision throughout the project to ensure that his delivery is of the standard which you and your client require. In these circumstances a 40% mark up may be suitable. However due to a ‘first time’ situation, and to remain competitive, you may take a commercial decision to apply a lower mark up of, say, 20%.

The benefit of working with Nick who is multi-skilled, is that time management will be reduced as you will not need to engage several different software specialists. A higher mark up rate could be applied to reward your ‘one-stop-shop’ strategy, say 40%.

For basic office admin costs such as telephone, fax, photocopy, postage and stationery, a mark up of 10% would be an acceptable amount, by way of delivering you a small profit for provision of these services.

The result is as follows:

Supplier

Service

Supplier cost

Mark up rate

Increase

Charge to client

 Sophie

 Designer

$5,000

50%

$2,500

$7,500

 Mike

 Copywriter

$2,000

50%

$1,000

$3,000

 Clive

 Photographer

$3,000

20%

$600

$3,600

 Nick

 Webmaster

$4,000

40%

$1,600

$5,600

 Admin

$500

10%

$50

$550

 Totals

$14,500

$5,750

$20,250

 

If you design a table (Excel or a similar spreadsheet package) with basic headings similar to the above, you will have a template at your fingertips to ensure that whenever you are preparing a quote for your client/s, it will prompt you consider what and how much to mark up.

With this form of control in place, you will always cover your supplier cost and generate profit to reward you for your efforts.

Click here for my previous article on the lowdown on markups.

Kathryn Williams

is a business and finance consultant who has worked in Europe and Australia. Expert in transforming ideas into action, and sustainable benefits, she works alongside management to improve operational performance and profitability.

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