The Real Cost of Materials
How much should you really be charging for materials? You’re a sign shop that provides a valuable service to your customers, but at the end of the day, you still need to buy your own raw materials to build the signs and print materials that you manufacture.
The questions for you to answer are, what do those materials really cost you, and how do you charge for them? You might initially think the answers are fairly straightforward, but we’re going to explain a new way to think about this issue.
Remember, no matter how complicated your business dealings can get as a sign and print store, shopVOX’s print shop software is here to help you make it easier on yourself and your employees. Don’t hesitate to get a free trial of our product today.
In the meantime, let’s dive into the real cost of raw goods.
How Do Other Sign Shops Charge for Materials?
After polling a handful of sign shops recently, one fact that became clear to us at shopVOX is that no two shops charged customers the same amount for raw materials. This could depend on the type of shop you are, but if you manufacture anything in the printing or sign markets, you’re going to be buying raw goods.
You might be buying sheets or coils of aluminum, sheets of plywood, or t-shirts for your printing business. Whatever you make for your customers, there is always a cost that goes into generating a finished product. The problem for business owners in these industries is that they don’t always know what to charge customers for these goods.
Some people actually don’t charge anything on top of their raw goods costs. They might spend $100 on some materials and then simply pass that cost along to the customer, not making any money on top of it. If you’re a business, then that definitely isn’t right.
How to Mark Up Raw Materials
So, how should a sign or printing business mark up its raw materials? There is no secret here, no single answer that is going to work for every business. You may even not agree with all the proposals we put forth.
The best practice that we are proposing is to mark up your raw goods by a certain percentage. That figure could be anything from 10% to 300%. Whatever you do, you should always ensure you are charging for raw goods.
Why We Mark Up
Why is this important?
Here are some good points. There is always the potential for spoilage and waste in the manufacturing industries. Maybe something goes wrong with the product in progress and you need to start over. Maybe a machine goes awry and damages a piece of raw material and it can’t be used anymore.
There is only one person who needs to lay out the money to buy more materials, and that is you as the shop owner. We are proposing that you make up for the potential for waste by including it in your final prices to customers.
After speaking with some business owners in the industry, we here at shopVOX eventually discovered some common ground on what a reasonable profit margin should be on raw materials. That figure should be 1.5 times the actual cost of the goods.
For instance: if a sheet of aluminum costs you $100, then you should pass along a charge of $150 to the customer. If something costs you $50, charge the customer $75.
Of course, it will be up to you to determine if this is a workable system for you, but you do have to know what your margins currently are and what they could be if you make some changes. Some shops might mark up their raw materials by only 10% to 20%, and that may not be enough to make the endeavor worthwhile.
We’ll reiterate: it’s vital that you look at the risk factors involved with manufacturing. What happens if your raw materials get damaged? How much more money will you have to lay out? What are your competitors’ rates for the same thing?
In fact, looking at competitors can be a good starting point for determining your own markups. For instance, if you see a competitor charging $15 a square foot for a digital sign panel, you can work backward and determine how the business got to that $15. In other words, figure out the margin that company is making by charging $15 per square foot.
If you truly want to compete and grow your own business, you might have to mark up your raw materials by 100, 200, or 300 times to get to that $15 upcharge on square footage.
To come back to the figure from earlier: charging 1.5 times the cost of the materials is a fair place to start for many of the raw materials in the sign and print industry.
Track Your Raw Goods Spending with shopVOX
For any readers who don’t already know this, the shopVOX sign software has a wastage calculator that users can turn on and off. Don’t forget to turn this on so you can figure out how to account financially for raw-material waste in your shop. Many shops charge anywhere between 6% and 10% specifically for waste, and somewhere in the middle should be a fair number for you.
shopVOX is happy to help you stay organized in any way we can. Contact us today to get your free trial of our software!