The Illusion of the 20% Markup
For decades, the "standard" way to price a landscaping or hardscape project was simple: estimate your labor, calculate your material costs, and add a 20% to 50% markup. On paper, it looks like a safe bet. In reality, it is a mathematical gamble that leaves your company’s financial health to chance.
At Elevation Advisor, we’ve identified the fatal flaw in traditional percentage markups. The biggest danger isn’t just material price volatility, it’s the Profit-per-Day Disconnect.
The Illusion of the Equal Markup
Most contractors believe that if they apply a consistent markup, they are protected. However, because markups are tied to "stuff" (materials) rather than "time" (production), two jobs with the exact same price tag can have wildly different impacts on your bank account.
A Tale of Two Jobs: Irrigation vs. Boulders
Consider two common projects, both priced at $5,250 using a standard 50% markup:
- Project A (Irrigation System): It takes a two-man crew 3 days to install. Materials cost $2,000, and labor costs $1,500.
- Total Profit: $1,750
- Profit Per Day: $583.33
- Project B (Boulder Installation): It takes the same crew only 1 day to install. Materials cost $3,000, and labor costs $500.
- Total Profit: $1,750
- Profit Per Day: $1,750.00
The Danger: Under a traditional markup system, these jobs look identical on your P&L. But in reality, the Boulder job is 300% more profitable because it frees up your crew to go make money elsewhere for the next two days. If you lose the high-material jobs, you lose the profit that was supposed to cover your overhead, and you won’t even know why your bank account is empty at the end of the month.
Why MORS and Markups Fail the "Volatility Test"
While the daily profit disparity is the silent killer, material price volatility is the catalyst. When you rely on material markups to generate profit, you aren't a contractor, you're a middleman for a quarry or a nursery.
If a supplier’s price for pavers drops by 20%, and you keep your standard markup, your profit drops automatically, even though the labor, overhead, and difficulty of the job remained exactly the same. You are effectively being penalized for your supplier’s price drops. Conversely, when prices skyrocket, your "markup" makes your bids look predatory, costing you the job.
PMM: Pricing the Expertise, Not the Product
PMM stands for Production Minus Materials. It is the total revenue you must produce, after material costs are removed, to cover your overhead, labor, and desired profit.
When you use the Profit Genie to find your PMM, you are identifying what your time and expertise are actually worth. Whether you are installing a $5,000 basic concrete patio or a $50,000 premium Italian porcelain deck, your company’s internal costs (labor, insurance, equipment, and your own take-home pay) don't change.
Under a PMM model, you make the same profit on both jobs. This allows you to be a "price maker." You can tell a client, "The labor and expertise to build this dream space is $X. The materials you choose will simply be added on top of that at cost." This transparency wins trust and ensures that your "Wealth Gap" doesn't widen just because a client chose a cheaper stone.
The "Pass-Through" Advantage
When you "Lock In" your PMM, materials become a "pass-through" expense. This simplifies your entire sales process. In the Elevation software, once you know your required daily PMM, for example, $1,600 per day for a two-man crew, you no longer have to stress about whether you marked up the sand or the gravel enough.
You simply ask: How many days will this take?
If the job takes five days, you need $8,000 in PMM. You then add the exact cost of the materials. This ensures:
- Lower Price Resistance: Your proposals look cleaner. You aren't hiding your profit inside a 40% markup on pavers that the customer could find the price for online.
- Guaranteed Margin: As long as your crew hits their production targets, your profit is guaranteed. You are no longer praying that the material-to-labor ratio is "right" for the job to be profitable.
Scalability and the "Small Jump"
One of the hardest parts of scaling a business is the fear that a large project will "go south" because of material waste or price hikes. The PMM model removes this fear. Because you aren't gambling on markups, your growth becomes a mathematical certainty.
As we discuss in the "Symmetry of Growth," when you add capacity, the Profit Genie shows you exactly how your required PMM rate changes. Often, as you add more production hours (field workers) to your year, your required hourly rate actually stays the same or drops, even while your total profit increases. You can't see this clarity if your numbers are muddied by material markups.
Conclusion: Stop Being a Reseller, Start Being a Producer
Your value to your clients isn't your ability to buy a pallet of stone; it’s your ability to transform their property through skilled production. Why should your profit be tied to the cost of the stone?
By adopting the PMM methodology, you stop the markup gamble. You gain the clarity to know exactly what your business needs to produce every single day to hit your annual goals. It’s time to move away from the "standard" industry guesswork and start pricing for the profit you deserve.
Stop gambling on the price of stone and start betting on your own production. When you move to a PMM-based pricing model, you remove the volatility of the market from your bank account. Use Elevation Advisor to "Lock In" your production rates today so that every proposal you send is built on a foundation of mathematical certainty. To learn more, book your demo today!
