Long and Short Markups

This document identifies the differences between long and short markup, and it identifies a few examples of when the different markups should be used. 

Definitions

Consider a product whose Sell Price is $100.00. You wish to perform a markup of 25%

• Short Markup = the sell price X (1 + markup percentage)
  • A "short" markup of 25% is taking the $100.00 (the sell price) and multiplying it by (1+.25) or 1.25 for a final value of $125.00.
• Long Markup = the sell price / (1 - the markup percentage)
  • A "long" markup of 25% is calculated by taking $100.00 (the sell price) and dividing it by (1-.25) or .75 for a final value of $133.33.

On the OASIS quote, the formula columns assume the following:

• Any value less than 2 is a short markup.
• Any value equal to or greater than 2 is a long markup.

Why Two Markups?

The quick answer is that if you use a short markup and later "give back" a percentage to the customer, you may lose money on the job. Note: use caution when using the short markup way.

The best way to use markups is to long mark up and to short mark down. For example:

The Long Markup Way

$100 cost with a 25% long mark up is $100 / .75 for a final value of $133.33.

$133.00 cost with a 25% discount is $133.33 X .25 for a final value of $100.00

The Short Markup Way

$100 cost with a 25% short mark up is $100 X 1.25 for a final value of $125.

$125.00 cost with a 25% discount is $125.00 X .25 for a final value of $93.75. 

In the example above, Line 1 is the default markup in OASIS. Line 2 is using a manual short markup.

Example

For most quote departments, the cost of the material is marked up a percentage using long math. Then outside sales is told, "we have 25 percent on the job." This allows sales to negotiate by giving a discount to the customer.

We start with a cost of $100.00, marking the job up 25% (long), which makes the sell price of the job $133.33.

To close the job, sales gives the customer a 20% discount, leaving 5% markup on the job.

The customer now has a price of $133.00. They calculate a 20% discount of 26.6 and an expectation that the final quote for the job will be $106.40.

Quotes will now take their price and make the same calculation. Note: do not reduce the long markup from $25 to 5%. This is not the same. Instead, take the price you have now and add a new column with a formula of .75. The result will be $106.40.

If this job was marked up using a short 25% markup, then giving the customer a discount of only 20% would result in the company losing $6.25. On small jobs, this will "nickel and dime" you out of business. On large jobs with big quantities, you may agree to give the customer hundreds of thousands of dollars. 

Using long markup is safe and allows sales to negotiate using percentages instead of hard dollar values that can be confusing--especially when varying contractor counts or changes on the project. As shown above,