What To Do About The Price Increase
Prices are increasing everywhere, aren’t they? Timber, steel, copper, gyprock – the price of all the materials seems to be increasing at the moment and, with them, the prices of many subcontractors too.
I’m not going to rant about whose fault it is or the profiteering that’s going on, except to say it’s global; it’s probably caused by increasing demand due to the stimulus packages and the fact that everyone is now spending more time at home and wants them to be nicer, and reduced supply because of lockdowns is keeping people off work. And there are some other issues too, I’m sure (like the Suez Canal being blocked, maybe).
But how should you handle the fact that your costs are going up?
If you’re a trade business, your materials will be increasing in cost. If you’re a builder,
you’ll be paying more for materials and subcontractors (because their costs will have gone up too).
There are three things you need to consider, aren’t there?
- Future quotes
- Current open quotes
- Won jobs and the T’s & C’s that govern them.
Let’s talk about future quotes first, they’re the simplest. Your prices need to go up, don’t they? Make sure the quotes you do in the future are based on the new costs.
If you do it the way I’d prefer you to do it, go and update your price book (I know it’s not really a book). If you do it more manually than that, update whatever system you use.
Let’s think about quote validity – right now, prices are quite volatile. You might want to limit how long you make your quotes valid. I know this is tricky for builders because customers might take a long time to decide but it’s necessary to limit your exposure. Keep validity periods short, explain why to your customers & discuss what happens if costs increase. If they are applying for finance, consider loading up the quote to account for the risk. Or have an understanding with them that the quote might change.
Current Open Quotes
What about quotes that are already out there? This is especially true for builders and construction subcontractors, isn’t it?
For maintenance trades, quotes are turned into jobs reasonably quickly and should be valid for about 7 days or so.
But, if you’re a builder or if you subcontract to a builder (residential or otherwise), you could have a long sales cycle and quotes valid for a long time.
Recommended Reading: The Hidden Costs Of Employing Contractors (Vs Employees)
So what to do?
First things first – a quote is not a contract, it’s not a binding document, it’s an offer only. You can withdraw your quote at any time and you shouldn’t feel bad about doing this. Until your customer has committed to you by signing a binding contract (or accepting your quote in writing) then there’s no agreement. Just as they can walk away, so can you.
So with all your open quotes, you can revisit and tell the client, “I’m sorry, prices are increasing, I’m going to have to withdraw that quote and issue a new one”.
They might object and they might complain. They might even threaten to go elsewhere. You can decide whether to cave in or not, I wouldn’t.
Remember, margins are important. Everyone else’s costs are going up too. And all the good trades are busy, just like you.
Won Jobs And The T’s & C’s
But what about jobs you’ve already won?
If you’re got some cash lying around, you can buy the materials for a job ahead of time and protect yourself from the coming price rises (assuming you have somewhere to store them).
If you don’t have that luxury, you have two options:
- Suck it up and wear the extra costs and the impact it has on your margins; or
- Confront the issue and talk to your customer.
The HIA recently told a builder client of mine that he would add 5% onto his contracts (HIA templates) as long as he kept it to 5%.
So check your contracts and your T’s and C’s – talk to your professional organisation about the contract you’re using and talk to a lawyer about your contract or your T’s and C’s.
Remember this – ANY contract can be amended if both parties agree. You’re not completely obliged just to suck it up.
Your first option is to take an honest assessment of the impact to your customer and ask them to share the pain.
Most people are decent and will come to the party. If you can insist on a 5% increase, consider doing that.
Your option of last resort if a compromise cannot be reached and the costs eat all your margins is to examine your contract termination clause – all contracts have one. You don’t need to lose money on a job, it might be cheaper to walk away.
One final thing if your agreement or your T’s and C’s don’t currently have a clause that states that ‘prices may increase if the price of raw materials increases’ (or something like that – I’m not a lawyer, get it done properly).
One of my builder clients and I were talking about the four jobs he was working on right now that he was expecting his costs to go up on by a lot, ruining all the fun.
He spoke to all four. Two immediately accepted a 5% increase, one accepted 2% and one accepted the need but is saying he can’t afford to pay any more (he’s playing hardball, isn’t he?).
But the two said, ‘Sure, we understand‘ straight away. Don’t just suck it up.
Call me and I’ll help you get brave – that’s part of my role as your coach.
There are four ways you can engage with me:
1. Subscribe to these emails and get them once a week in your inbox so you never miss a video from me.
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4. Book yourself a 10-minute chat with me. We’ll talk about whether coaching is right for you now and if it is, we’ll go further into the process before you have to make your mind up.
See you later.