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In another thread the issue of material costs as a percentage of the job price was raised. I questioned how/ why materials would ever get to 25%- 30%+ as others claimed. From some of the comments that followed, it appears that some view the thread as evolving into a he said—she said situation, i.e., a matter of opinion.
I completely disagree with any such evaluation. It represents a misunderstanding of what such percentages (or any number) represent, what they tell us, and how they can be used.
(Forgive me if this seems condescending, but there does seem to be some confusion on the issue.)
A number is a quantification of a fact—a measurement of reality. A percentage is a ratio—a comparison between two measurements or facts. A number is not a matter of opinion, it is a cold, hard fact (unless one just makes it up, in which case it is an arbitrary assertion). For any number or percentage to be useful, we must understand what it represents and the context in which it arises. In other words, a number means something specific, but only within a specific situation. Change the situation, and the meaning also changes.
This does not mean that one number is necessarily right and another is wrong—it is what it is. In the case of material costs, a wide range is possible. But that range is dependent on numerous variables—the type of work, the type of material, the company’s cost and pricing structure, etc.
In the other thread, the discussion centered on one variable—the type of material used and its impact on the material percentage. (At least one poster tried to introduce other variables, which evades the context and is meaningless.)
My position was, and remains, that if materials are marked up then an increase in the cost per gallon will also increase the selling price and partially offset the higher material cost. The higher the markup, the greater the offset. I showed exactly how and why this occurs.
Anytime we introduce new variables into an equation, we make analysis more difficult, if not impossible. Each variable will have an impact on the numbers, and identifying the precise impact of each is difficult when multiple variables are changed at the same time. Meaningful analysis generally occurs by altering one variable at a time and then measuring its impact.
Consequently, there are only 2 reasons that material costs could rise to 25%+ of the job price: 1. Materials are not being marked up much; or 2. Other variables are introduced into the equation. This is not a matter of opinion, nor is it a matter of how I run my company. This is what the numbers represent.
1. If materials are not marked up, any increase in the cost per gallon is borne entirely by the contractor, and thus the material percentage increases. The greater the markup, the more of the price increase that is passed to the customer. Therefore, the less the impact on the percentage of materials.
2. Other variables introduce other measurements, and consequently, other facts. Which means, the context changes. Comparing two completely different contexts is simply an exercise in futility, and it contributes nothing to our understanding.
If someone claimed that in their business 2 + 2 = 5, the numbers would not make sense. I would question their claim, not because of my company or my numbers, but because it simply does not add up. In other words, it isn’t an issue of my numbers, it is an issue of the numbers.
This isn’t an issue of I am right and you are wrong (or as some seem to see it, Brian vs. Scott). It is an issue of what is true, what are the facts. The numbers represent specific facts within a specific context. To deny this is to render the numbers meaningless, and that is wrong. Unless I missed it somewhere, nobody addressed the numbers I used to present my position.
Certainly the numbers can vary between companies, jobs, or industries. I did not and do not dispute that. My dispute is that the numbers will change as dramatically as was claimed within the context I was discussing. Nothing more, nothing less. If I have made an error in math, or my numbers are based on false premises, that can be easily demonstrated. I would be more than happy to learn something and admit my mistake.
However, to make a claim that something is true simply because you see it is not a compelling argument, and even less so when the means of supporting that claim are as objective and easily demonstrable as numbers.
Brian Phillips
I completely disagree with any such evaluation. It represents a misunderstanding of what such percentages (or any number) represent, what they tell us, and how they can be used.
(Forgive me if this seems condescending, but there does seem to be some confusion on the issue.)
A number is a quantification of a fact—a measurement of reality. A percentage is a ratio—a comparison between two measurements or facts. A number is not a matter of opinion, it is a cold, hard fact (unless one just makes it up, in which case it is an arbitrary assertion). For any number or percentage to be useful, we must understand what it represents and the context in which it arises. In other words, a number means something specific, but only within a specific situation. Change the situation, and the meaning also changes.
This does not mean that one number is necessarily right and another is wrong—it is what it is. In the case of material costs, a wide range is possible. But that range is dependent on numerous variables—the type of work, the type of material, the company’s cost and pricing structure, etc.
In the other thread, the discussion centered on one variable—the type of material used and its impact on the material percentage. (At least one poster tried to introduce other variables, which evades the context and is meaningless.)
My position was, and remains, that if materials are marked up then an increase in the cost per gallon will also increase the selling price and partially offset the higher material cost. The higher the markup, the greater the offset. I showed exactly how and why this occurs.
Anytime we introduce new variables into an equation, we make analysis more difficult, if not impossible. Each variable will have an impact on the numbers, and identifying the precise impact of each is difficult when multiple variables are changed at the same time. Meaningful analysis generally occurs by altering one variable at a time and then measuring its impact.
Consequently, there are only 2 reasons that material costs could rise to 25%+ of the job price: 1. Materials are not being marked up much; or 2. Other variables are introduced into the equation. This is not a matter of opinion, nor is it a matter of how I run my company. This is what the numbers represent.
1. If materials are not marked up, any increase in the cost per gallon is borne entirely by the contractor, and thus the material percentage increases. The greater the markup, the more of the price increase that is passed to the customer. Therefore, the less the impact on the percentage of materials.
2. Other variables introduce other measurements, and consequently, other facts. Which means, the context changes. Comparing two completely different contexts is simply an exercise in futility, and it contributes nothing to our understanding.
If someone claimed that in their business 2 + 2 = 5, the numbers would not make sense. I would question their claim, not because of my company or my numbers, but because it simply does not add up. In other words, it isn’t an issue of my numbers, it is an issue of the numbers.
This isn’t an issue of I am right and you are wrong (or as some seem to see it, Brian vs. Scott). It is an issue of what is true, what are the facts. The numbers represent specific facts within a specific context. To deny this is to render the numbers meaningless, and that is wrong. Unless I missed it somewhere, nobody addressed the numbers I used to present my position.
Certainly the numbers can vary between companies, jobs, or industries. I did not and do not dispute that. My dispute is that the numbers will change as dramatically as was claimed within the context I was discussing. Nothing more, nothing less. If I have made an error in math, or my numbers are based on false premises, that can be easily demonstrated. I would be more than happy to learn something and admit my mistake.
However, to make a claim that something is true simply because you see it is not a compelling argument, and even less so when the means of supporting that claim are as objective and easily demonstrable as numbers.
Brian Phillips
