Note: This article applies to users of OnCall Air using our "connected" supplier integrates, where product costs are integrated and updated in OnCall Air automatically. And as always, the pricing advice here is just advice and you should verify that it works for your business and your unique situation.
OnCall Air provides many techniques for managing your pricing and making sure you are driving your target profits. In some cases, however, a connected supply partner may add a special "surcharge" on their equipment sales, which is not embedded in the cost from the supplier. This uncommon situation may require a bit more setup to make sure it's not impacting your profit targets.
In the case where an additional percentage fee is applied to certain types of equipment or brands, we recommend using OnCall Air Adjustment rules in the Pricing Engine to ensure that you are covering the applicable surcharge. This article walks through an example and some calculations that may be useful.
Example Scenario - 10% Surcharge on Condensing Units
Let's assume that your supplier adds a temporary 10% surcharge on all AC condenser units. But in this case, the surcharge is being added separately to product sales, and is not reflected in the cost of the product.
To make sure you handle this surcharge, we recommend the following two steps:
1. Calculate the Margin equivalent of the markup percentage.
Because OnCall Air's equipment pricing is based on a target gross margin, and additional charges are typically expressed as a percentage markup, you'll need to apply a formula to convert the markup % to the equivalent margin.
Here's a formula that allows you to convert a markup to a margin
AGM - The Adjusted Gross Margin % Target
GM - This is the existing Gross Margin
SMA - This is the additional markup % you are accounting for
Let's assume your current Gross Margin markup is 45%. And the surcharge is 10%.
We'll use this formula to calculate the Adjusted Gross Margin (AGM):
AGM = 1 - (1 - GM%) / (1 + S%)
AGM = 1 - (1 - 45%) / (1 + 10%)
AGM = 1 - (1 - .45) / (1 + .10)
AGM = 1 - .55 / 1.10
AGM = 1 - .5 = .5
So in this case, the Adjusted Gross Margin target would be 50%, instead of 45%. This would cover the additional 10% markup on the equipment.
2. Create an Adjustment Rule in your Pricing Profile.
Once you know the adjusted markup (using the formula above), you can then apply this markup using the Pricing Profiles.
If the surcharge applies only to a type of equipment, a brand or a series, you can use the Adjustment Rules to adjust the margin only for that matching equipment component.
If, for example, a 10% surcharge was applying to the Air Conditioning outdoor unit --and your base Gross Margin target is 45% -- then based on the formula above, Adjustment Rule would set the target margin to 50%.
Learn more about Pricing Adjustment Rules in this article.
Be sure to test this out and make sure it works for your business by creating a test proposal and using the proposal inspector to review the pricing logic.