How to profitably manage increased costs

Pavement maintenance contractors are facing what every construction specialty firm is facing … rising costs in just about every facet of the business. From steel to gasoline, oil to insurance, costs you can't control are rising.

So how do you offset rising costs without pricing your work too far out of the marketplace? Here are five suggestions to help keep you in business — and make you more profitable.

  1. Review Pricing History. While many contractors drag their feet when it comes to increasing their prices, a growing number are waking up to the fact that they need historical data to sharpen their pricing strategies. We know this because we are assisting a growing number of paving, sealcoating, sweeping, and striping contractors in how to become more price sensitive by using a more statistical approach to pricing. Such an approach has not only improved the bottom line it has also shown contractors how much money they had left on the table in past years. Be sure to review your pricing history each year to determine if you are using the right mark-up values for the types of work you wish to land.
  2. Pass On Material Costs ... Whenever You Can. This is so obvious that it almost always gets left off the list. In reality you might not be able to pass on increases received from material suppliers once you have a signed contract — but that is no reason to not try! Next Level Contractors are beginning to insert clauses into their contracts that clearly state that increased material costs may be passed on to the customer during the life of the contract. This doesn't mean that you won't be challenged by your customers, but it certainly should be included in the relationship. It's just good business.
  3. Recoup "Lost" Expenses. There are many expenses contractors will "eat" as part of doing business. Costs of jobs such as picking up additional trashy areas, adding just a little more square footage of paving ("You have a little extra material, could you just add a little sidewalk?"), or coming back a third time to seal a small high traffic area not covered under the contract are "lost" in the sense that many contractors comply with the customer's request without aggressively looking to recoup the dollars involved. Now, this doesn't mean you never do anything for free but rather that you take a hard look at the types of things that you have never charged to the customer for fear of losing him.
  4. Raise Your Overall Efficiencies. Declare "war" on everything your company does and how you do it. From planning to providing roadmaps for crews to investing in better equipment and training new employees, there are many things you can do to raise the efficiencies in your business. Rework, waste material, "down time," absenteeism, etc. are all results of how you make your own cost of doing business more expensive. With rising costs in areas that you can't always control it is imperative you work hard to control the costs that you can have greater influence over.
  5. Price Compare & Negotiate Volume Discounts. It is important to build relationships with suppliers, but even relationships may take a backseat if a supplier is being more aggressive than warranted. One sure way to determine this is by comparison shopping. Ask for volume discounts if your purchases might warrant them. If you are a small contractor then perhaps get a few of your friendly competitors together to form a buying group that might be able to offer more purchase power with the supplier.

As the costs of doing business continue to rise it takes a renewed effort by each pavement maintenance contractor to explore every possible option to maintain lower production costs, taking into account each and every step that they can take to combat the cold reality of rising costs.

Don't wait until your back is up and against the wall. Begin today to monitor your pricing, job costs, and costs of materials and supplies. Jump out ahead of your competition by being more knowledgeable about the realities of today so that you can be prepared to overcome the realities of tomorrow.

Brad Humphrey is president of Pinnacle Performance Group, a consulting firm that specializes in the construction industry. Brad and his business partner, Jeff Stokes, have recently launched a new division, The Next Level Contractor, to provide educational resources, pricing and job cost services, and business management expertise. Brad and Jeff have been regular speakers at the annual National Pavement Expo and National Pavement Expo West for almost 20 years and will again be headlining shows this upcoming season. Contact Brad or Jeff by calling 913.441.3001 or by E-mailing them at team@pinnacle-performance.com.

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