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Markup on outside services?

SchneiderMachine

Stainless
Joined
Mar 29, 2007
Location
Hamburg, Minnesota, USA
Is there a general rule of thumb for marking up outside services? A company I make stuff for used to send these parts out for finish work after I made them, now they want to be left out of the loop so they want me to do it. It is a substantial chunk of change I have to shell out and wait 30 days to get it back.
Any words of wisdom from anyone would be appreciated.
TIA,
Dave
 
Danger Danger Danger !

Call up the finishing vendor and find out how long he has to wait to get paid from the guy for whom you do the pre-finish work. There could be an underlying reason why he wants you to be responsible for the whole job.

Dont be bashful about marking up his price to include your shipping costs, paperwork processing, aggravation cost, and the time cost of money waiting to get paid, etc.
 
Call up the finishing vendor and find out how long he has to wait to get paid from the guy for whom you do the pre-finish work. There could be an underlying reason why he wants you to be responsible for the whole job.

Dont be bashful about marking up his price to include your shipping costs, paperwork processing, aggravation cost, and the time cost of money waiting to get paid, etc.


Nahh, no danger there. I understand "why" they want to do it that way. We discussed it at some length one day. Their trying to eliminate some hassels on their end. When they order a part they want all the operations completed when they get the part received into their shop. It's not just this part, its all parts.
I'm thinking 20 percent markup???
Dave
 
Outside Services

Some of the errors in bidding these is to forget the administrative burden and just quote the cost of the machine time labor to do the job. Be sure that you consider efforts to manage the contract, billing and shipping-receiving, and you need to consider that there is marketing time that should be allocated to every task. Remember that time you spend talking to a prospective customer is time you need to get paid for. You can't bill a guy for calling you for information of for sending him a quote. Those efforts are part of your general and administration burden that should be built into all your jobs pricing. There are also what is referred to as general and administrative costs. The additional social security and medicare you pay on the income, the taxes you will pay on the sales dollars(minus cost), etc.
Also be sure that you document your hours so you can back-check to see if you earned a fair profit. Sometime its OK to sell at cost if the cost pays the overhead like rent and utilities and keeps a customer coming back with other profitable jobs.
I have found that 15% to 40% is often representative for the G&A adder then a profit or fee is added to that.
And don't forget setup time nd some of the other forgotten items. Short run jobs it can eat you alive when you quote 1 hour machining then find out it takes an additional half-hour for setup plus a half-hour for cleanup afterward, then you realize you have dulled a tool and it may need sharpening or repalcement and you need to add lubricants or cooling mist, etc.
Everrthing needs to be considered.
Then again, the small shop that makes big profits doesn't always bother considering small or incidental costs.
 
Don't forget to add for whatever may get scrapped in the secondary processes. Did they scrap a batch for your customer and now he figures he'll let someone else eat it? pretty rare that a plater or any secondary process will eat any cost, maybe cost of raw materials, rarely. Usually the shop gets nailed for it.

Personally I've decided not to deal with anything that has a secondary process, unless the customer takes care of it and ideally inspects my incoming parts before any secondary work is done.

As to what to charge, as much as its costing him, including all messing around, plus your risk factor. I think thats how a $10.00 part, with a $2.00 plating cost turns into a $20.00 part done. Some will pay it for the convenience I suppose.

Of course if its a very simple part, like some rough punched parts or whatever that gets tumbled and tossed around. Risk factor is pretty near zero unless they lose the whole batch :D
 
Cost plus 15% to 20% is common, but the cost should include:
Your added time for management/overseeing/hassel factor
Any financial costs for payment terms (interest on out of pocket money)
Risk assement for lost/damaged/scrapped parts
Shipping
Additional insurance you might have to carry to cover added risk by providing the finished product (ex. a 24" steel bar - low risk. a 24" steel bar that has been bored and rifled to 30 cal - bigger risk and added insurance)
Liability coverage for not meeting delivery schedules that is caused by the secondary work. Do you have to hold extra inventory in stock to make sure you can deliver? Sitting there isn't free.

Bottom line - make sure you got all the costs in there. Make a list of any additional liabilities or what could go wrong and what it will cost to make sure those possiblilities are covered.
 
Nahh, no danger there. I understand "why" they want to do it that way. We discussed it at some length one day. Their trying to eliminate some hassels on their end.
Dave


the hassles are EXACTLY where the danger lies....otherwise they wouldn't be 'hassles'.....they want to transfer the hassles to YOUR end, how much do you want to earn for the extra hassle?
 
pretty rare that a plater or any secondary process will eat any cost, maybe cost of raw materials, rarely.

Of course if its a very simple part, like some rough punched parts or whatever that gets tumbled and tossed around. Risk factor is pretty near zero unless they lose the whole batch :D



au contrair, mon frair.....the plating shop I worked for many years ago ate scrapped parts (we re-worked any parts we could, eating plating chemicals to do it, but any that were etched, etc, we ate the cost of the finished part, IOW, what the parts were worth to the client out HIS door finished-'value added', not what he had into them so far, as we were the last step in the process before final assembly), and it could get REAL expensive real quick that way...the only exception to this was if we could PROVE the materials weren't up to spec coming in our door....batch of bad metal, surface defects obviously inflicted before plating, etc....the clients billed us this way because if we scrapped parts, it screwed up their just-in-time scheduling, and put their assembly dept at a standstill. we DID, however, due to the nature of their rush-rush-gotta-have-it-now-and-perfect scheduling, charge them a premium for the work in the first place. :D
and yes, there were times we 'lost' (scrapped) whole batches of parts for other clients (leaded steel screw machine parts covered in oil etch waaay too easy)......
 
the hassles are EXACTLY where the danger lies....otherwise they wouldn't be 'hassles'.....they want to transfer the hassles to YOUR end, how much do you want to earn for the extra hassle?

Well, I understand. That's why I asked the question of markup or should I say "hassel factor":)
I already warned them if I start taking care of the "other" hassels I will not lose any money, ain't gonna happen. Basically I told them if the other outsourcing company just happen to scrap the parts, it's thier loss, not mine and they understood.
Dave
 
Nahh, no danger there. I understand "why" they want to do it that way. We discussed it at some length one day. Their trying to eliminate some hassels on their end. When they order a part they want all the operations completed when they get the part received into their shop. It's not just this part, its all parts.
I'm thinking 20 percent markup???
Dave

Take the cost of your work and the finishing costs + time and shipping to get the whole job done, and add it all together and multiply it by1.25 or more.

The customer doesn't want to get burned on losing your work when the plater get sloppy or damages your work.

You almost can't charge enough to have your good work in the careless hands of outside vendors.

The best of all worlds is to give the job to the plater and then have him go for the outside processing. That way you get paid from the last guy who works on the job. He would then need to be responsible.

Just my rant on this subject.

Best of luck and regards,

Stan-
 
Whatever your decision is, GET IT IN WRITING.

Make sure you cover who pays whom for what and when.

Sounds like they want you to cover some float that they may not be getting from the finisher. Get the finisher on the phone and ask them about payments, how picky they are about accepting parts, how fast/slow AP is.

If the finisher is happy with them, then you may be onto something... just remember to add in 20% for your new job as THEIR parts guy.
 
at least 35% that is if they pay like a slot machine showing all cherries!

truck shops markup 35% as a rule, sometimes much more
i know of some that markup 100%

bob g
 








 
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