How Framers Mark Up Materials
Marking up materials correctly is necessary to make a profit—but that’s not as simple as it first appears. The analysis of how custom framers are currently marking up the major components of custom framing shows some very interesting results. To understand this, let’s look at the average markup for mouldings, mats, and Tru Vue glazing being used by the huge sample size of framers from the LifeSaver Software database. First, the term markup is defined as the amount of money added to the cost you pay for something and the retail price. Markup can be expressed as a percent-age of a dollar amount. For example, if a frame costs you $8 for materials and you price it at $24, you have marked it up $16 or 67 percent (retail price minus the cost, divided by retail price). Or you may say you marked it up three times because $24 is three times your cost of $8.
Markup, however, is not necessarily what you make—it’s where you start. If you discount or reduce your retail price, then what you make is reduced. What you actually make is called margin (which will be the subject the next analysis in this series).
Markup is the second-most important factor in making money—next to margin. It doesn’t matter where you start your pricing; what matters most is what you sell it for.
Before looking at markup, it’s important to review how point-of-sale systems help create pricing options and markup. All POS systems come with preset pricing for moulding, mats, glazing, mounting, and fitting. The reason that vendors pre-load pricing is that it would be very difficult to show how a system works without pricing already entered in. Another reason is that framers find it very intimidating to create a pricing strategy from scratch. Not including pricing would mean that fewer POS systems would be sold because too many users would feel unqualified to create a profitable pricing program.
Therefore, pre-programmed pricing is a necessary part of marketing POS systems. However, it creates a huge challenge because many framers—still intimidated by setting pricing tables themselves—leave the pre-pricing in their systems. Why is this an issue? Because allowing the preset pricing to dictate how you set your pricing, you are not controlling your ability to make money. If the preset pricing is too low, you won’t be able to cover your expenses. If it’s too high, it will hurt your ability to make sales.
Markup is the second-most important factor in making money. If you don’t mark up your materials enough, you won’t stay in business. For that reason, you should not attempt to copy the results and the numbers shown here. The only way to be sure you have the correct pricing is to set them so that they cover your own individual expenses and also provide adequate profit after expenses are paid.
How the Industry Prices Moulding
Fifty-three percent of all the sales framers make are on moulding. Using a sample size of over 985,000 sales from the LifeSaver database, 52 percent of this total is from length moulding, with 46 percent from chops and 2 per-cent from joined. The average pre-discount retail for all frames is $113.84.
Chop mouldings have an average cost of $41.38 per frame and an aver-age cost per foot of $5.24. Chops have an average retail price of $127.18, making the potential profit $85.80 per frame. This is the potential because this is a look at POS system prices, not the actual sales results after mark downs are applied.
Length moulding costs a framer an average of $25.92 per frame with an average cost per foot of $3.16. However, the cost reported is only for what the system calculates is needed for the project—not what it is actually shipped and paid for. This factor makes length moulding appear more profitable than it really is. Considering that the average retail (before dis-counts) is $102.01 for length, it would appear that the average profit is $76.09 per frame. However, if you assume that 10’ of moulding is sent as a minimum on length orders, the actual average cost rises to $31.63 and profit drops to $70.38 per frame.
It’s very interesting that framers price length moulding so much lower than chops. If you sell the same moulding at $127.18 when you purchase it chopped, why can’t you sell it for the same price when you buy it in length? Does the customer know how you ordered it?
One more observation about chop and length markups. If you take length moulding up to the same price you get for chop ($127.18) then you could make $95.55 on a typical moulding purchasing length and $85.80 using a chop service. That is only $9.75 difference. Is that enough to offset labor and equipment?
How the Industry Prices Matboards
Eighteen percent of a typical framer’s revenue comes from selling matting. The average mat is priced in the system at $25.11, and it costs the framer $12.36. Most framers would look at that and say, “no way” because you use multipliers much higher 2.03. While that’s true, the multipliers found in POS system preset pricing and the ones framers use are usually about twice what it shows you actually end up with on a typical frame. Why is that? The first reason is that framers sell so much small stuff. According to the study, 52 percent of all projects framers sell are 36 united inches or smaller, and a whopping 89 percent are smaller than 60 united inches!
That means a typical frame shop selling $200,000 in custom sales with an average ticket of $180 only sells 122 projects a year larger than 24”x36” while it sells nearly 1,000 projects smaller than that size. When the POS system calculates retail for a 16”x20” project (52 percent of your sales), it first divides the cost of the mat in half before it applies the multiplier in your table. Forty-seven per-cent of all mats purchased by framers cost between $8 and $9. That means that the POS system would reduce your cost to about $4.25 before using the multiplier you have placed in the table instead of the real cost of $8.50. This drastically reduces the markup you receive since more than half of all mats are this small.
To further complicate matboard pricing, framers have very little data showing how many mats per year are actually cut from scrap. The best estimates are between 15 and 30 percent, but that is a very wide gap. Cutting from scrap significantly improves the reported average margin but you just don’t know enough to calculate for it.
What does all this mean? The statistics show the typical mat only gets marked up 2.03 times. For almost everyone, this is far less than what is needed. Yes, there’s some additional profit made by cutting scrap mat, but perhaps that shouldn’t be factored into setting your tables since there’s no specific industry data for yield.
How the Industry Prices Glazing
Sixteen percent of the average framer’s revenue comes from glazing. Sales of glazing for Tru Vue products break down like what is shown in the chart. It’s interesting to note that 31 percent of all projects framers sell don’t include glazing. It’s also interesting to note that an industry that exists because it offers the preservation of valuable materials still uses non-conservation product on more than 20 percent of the items requiring glazing.
The average retail price for a piece of glazing is $35.55 with an average cost of $8.42. This average markup significantly surpasses the 2.10 result found in matboard. Since the average project sizes remain basically the same, the improved mar-gins can be credited to the ability to purchase glazing in smaller pieces with lower costs per unit. Because of this, multipliers are applied to a truer cost per unit and margins reflect this.
Remember that POS systems do not update glazing costs, and some do not update matboard costs. This means that your system could be using its multipliers on incorrect costs and not providing the margins you expect to receive.
The Next Step
It’s certainly interesting to see how such a wide sample of framers prices various products. Moulding is king and represents much in terms of how profitable framers are. Small sizes dominate sales and pose challenges for profitable pricing on mat-board. Hopefully, these results can help you make more profit. Working on the correct prices for moulding will provide the greatest return, and creating tables with higher multipliers for the smaller united inch ranges will dramatically increase your prof-its without raising prices as notice-ably as on large projects.
However, the data covered here only presents half the real story. The next installment in this series will look at the results of what is happening between the time framers enter projects into the POS system and the time when they give the price to the customer. It’s a dramatic change from what framers should be charging to what they are actually receiving to run their businesses.
Remember the statement that markup was the second-most important factor in making money? That’s because it’s not how you price things that matters most; it’s what you keep. And that’s called margin. The next article will show how discounting is affecting the industry.