Unfortunately, we are experiencing a period of economic inflation. For some operations, this has become a critical issue that threatens their business survival. Have you ever considered what would happen if certain clients scaled back projects due to the current high pricing? How would that affect you? How should you handle it, and are there any opportunities to make the most of it?
In today's market, we are faced with not only material shortages but costs of all goods going through the roof—labor, materials, rent, fuel, asphalt, etc. I can't think of anything that hasn't increased and I can't think of anything that has risen only a little. The problem is when it all goes up so much, so fast, it becomes a survival issue first, then an issue of strategy. Of course, survival and strategy are intertwined, but the first strategic step is to figure out how to survive.
Of course, pricing must increase immediately. I recall over the years getting notices of price increases from suppliers, and often material shortages or national or world events would be the driving factor. As a small business we can’t absorb significant increases (like we faced in 2021 and possibly will in 2022) and still survive, so we look at price increases as an opportunity. We raised our prices! And when letting clients know, we sent along a news article of the issue as the explanation.
We did this years ago during an oil shortage and it worked just fine. When we got pushback from clients, we simply reminded them why. Nobody wants to be the leader in raising prices, but when you have a good reason, people generally understand. (After all, they run their own business!) Then, if material prices fall (though rarely back to pre-event pricing) we dropped ours too.
As you raise prices, make sure you know all your costs down to the cent (and perform accurate job costing on each bid). With new pricing from suppliers, this is a critical step. It’s unfortunate that we can’t raise prices enough to cover the inflated costs of our supplies across the board, so margins will be lower…but we’ll survive!
But the initial strategic step of raising prices is only the start; It gives you a survival edge. But let’s face it, in inflationary times when money is tighter, some clients might be less willing to spend on their pavement. The hope is that the stream of leads and work continues, but if not, what's your plan?
As you strategize, identify potential services or clients that might adversely affect your revenue stream and start planning for alternatives. Maybe you need to pursue a different type of client, or maybe something as drastic as making your operation smaller and leaner. Try to identify the strategic areas you might need to address to survive but look at those areas as ways they can also help you grow. That’s where the strategy comes in.
Look for ways to market services that might fit the current economic situation and current client base services that you might not typically market, from premium sealcoats to traffic signs to bollard covers etc. Even though clients might want to reduce spending, they often buy upsells or alternative services as a less-costly stopgap measure. Maybe they were going to pave but now want to reduce the capital expense of an overlay – so they might consider a premium sealcoat instead. I have also seen patching flourish in these situations to improve pavement without the expense of an overlay.
Most pavement maintenance businesses are relatively resilient and can shift services to match the market’s need. The general idea is to keep an eye on anything you can do to create revenue without increasing your overhead much – and then carry that strategic move into future growth. As I always say, lean and mean wins the game. Inflation is nothing more than an opportunity if handled right.
