It's a simple reality in many industries, including the construction and contracting world: Prices are going up around the globe. Due to everything from supply chain issues to inflation and more, it simply costs more to get items from one place to another, and the contracting industry is no exception - how can contractors maintain profitability despite this?
At Contractors School, we're here to provide numerous resources to Utah clients as they start or maintain a contracting business, with services ranging from contractor license education and courses to continuing education, financial tips and more. Here are some basic tips we offer to clients on how to stay profitable and robust during recent periods like these where supply prices go up outside your control.
While no one is expecting a thorough report on price changes daily, it's important to stay up-to-date with the latest prices and cost of materials. Keeping a close eye on buying trends and tracking price changes may help you anticipate certain expenses in the future, giving you time to adjust accordingly.
For instance, if you've recently noticed that a common material you utilize for your projects has recently started to climb in price, start tracking that material closely and begin to plan for potential price increases. Many contractors have fallen into the trap of not paying attention to these changes until it's too late, so staying ahead of the curve is key in this situation.
While this won't always necessarily be possible, there are many times when contractors can shop around for better prices from different suppliers. This isn't always the case, as certain materials may only be found in specific locations - however, it's worth considering if you're pricing out projects and need to lower costs.
Now, you have to be careful when terminating a relationship with a supplier - it may not always be the best decision for your business in the long run, so consider all of your options before making any big decisions.
One great way to save costs and stay competitive is through the utilization of technology. By investing in software or other online tools that can help you better track and anticipate expenses, you can stay ahead of the curve and have a better sense of where your business stands.
For instance, software like project management systems or invoicing tools can help reduce paperwork and other administrative costs that may occur throughout the construction process. These types of programs can be very helpful for staying organized throughout a project's duration and staying on budget.
While we all wish we could exclusively achieve high margins for every service and project, it's not always the case. In order to stay profitable, many contractors will offer a combination of low-margin services that generate quick cash flow alongside high-margin services that require more time and effort. By doing so, you can capitalize on both lucrative projects as well as fast turnaround jobs to keep your business running smoothly.
For example, you might offer small electrical projects for a low margin, but then combine those with larger-scale lighting solutions for higher profits. This way, you're able to generate quick cash flow and still come out ahead in the end.
One key contributor to overhead costs is waste - and there are a number of ways to reduce wastage within your business. This might include anything from utilizing better packaging materials that generate less waste to reducing the amount of time it takes to complete projects (which can help cut down on material wastage as well).
In other cases, reducing waste comes down to evaluating your building processes and making necessary changes. This might include anything from utilizing more efficient construction techniques to switching to smaller and more cost-effective tools. By doing your best to limit waste in any way possible, you'll be able to reduce expenses and come out ahead in the end.
And while no one ever likes to raise their rates, it's a necessary step in many cases. As the costs of materials continue to rise and competition increases in the market, raising your rates may be the best way to stay competitive while still making a profit.
One extremely important element if you do go this route: Explaining the changes to your clients, rather than simply raising prices without any explanation. This will help your clients better understand why the changes are necessary and can help you maintain a positive relationship with them in the long run.
Even if you've had to raise your rates or take other steps to reduce overhead costs, that doesn't mean you have to turn away loyal customers. In fact, there are a number of ways to reward your best customers and keep them coming back for more.
This might include offering discounts on certain services or products, providing additional benefits to long-term clients, or simply offering better customer service than the competition. As long as you treat your customers right and make them feel appreciated, they'll be less likely to take their business elsewhere.
Ultimately, it's important to remember that while prices may be increasing, there are still ways to keep costs down and stay competitive in the construction industry. For more on this, or to learn about any of our contractor license or other services for Utah contractors, speak to our team at Contractors School today.