In my previous posts I have been discussing at length different types of costs including direct and indirect costs, direct and indirect material costs, direct and indirect labor costs and lastly burden. The next point is Markup Rate which is the key to making money.
Markup is the amount of profit that is made on a job which would also include the taxes made from that profit. There are a few different types of profit
Gross Profit includes earnings from ongoing product shipments after direct costs of goods sold has been subtracted from the sales revenue. That is a big mouthful but its basically what was your revenue minus what expenses your incurred while manufacturing that product. This must be positive or it is costing you more to manufacture the product then the actual direct costs of the product. A simple example is if you made a bracket and you sold the bracket for $5.00 but the raw material for the bracket was $6.00. In this case you are already upside down.
Net profit would is earnings subtracts all the miscellaneous expenses including indirect costs, administrative costs and taxes.
Markup would be higher then your operating profit and net profit but the true goal is to have Markup, Net Profit and Operating profit all to be positive
MIE Solutions has developed software to help manage and control your costs from estimating to shipping the product out the door.