How to adapt with inflation rates
what is inflation and how does it affect contractors? Inflation is the overall increase in price and loss of purchasing power for consumers. The United States’ annual inflation rate has increased from 8.6% in May to 9.6% in June 2022. Breaking records by being the highest it’s ever been in 40 years! The construction industry continues to be impacted by inflation both directly and indirectly. Directly being affected by the increased price of materials and labor. Additionally, being indirectly affected by declining sales volume and extending project timelines. Overall affecting Contractors, homeowners, and other trades in the industry. Here are some tips on how to adjust, prepare and stay ahead of the game when it comes to increasing inflation rates.
1) Proper Cost Analysis
A contractor needs to be realistic about market prices before bidding to a client. Modifying and adjusting bids corresponding to the current market price before submitting to a client not only ensures realistic opportunities but also ensures homeowners, they are willing to pay for the project. Overall benefiting both groups before, during, and after the construction project is complete.
2) Purchase Material Ahead of Time
Another way contractors can stay ahead of inflation rates is by buying material beforehand and creating a stockpile. Reviewing the supply chain and staying up to date with the media can help evaluate price increases or shortages of material. Stockpiling can ensure you keep your projects on schedule, keep your clients within budget and help you have a leg up on the competition. In addition, it’s important to know how to properly take care of your materials to prevent additional problems. For example, leaving material out on a job site could lead to weather damage or theft, ensure you keep material covered, out of sight, or in storage space.
3) Accelerate Project Time
Although not always possible, a good idea to stay ahead is to accelerate your projects before inflation rates go up. As a contractor, gather your team of architects, engineers, subcontractors, and suppliers to create a plan to start or finish a project before prices go up. Again, helping you stay closer to budget and avoid paying higher prices for the material.
4) Communication
Communication is key to having a good relationship between you and your client when it comes to a difficult market. Ensure that you give your client an accurate timeline for their project and let them know about the risk of increasing prices. Being honest with your client can help their overall satisfaction and clarity. Introducing non-monetary value can also be a great way to bring value to the home while prices increase making you look better than you would not be able to provide anything.
5) Include a price Adjustment clause
In addition to communication, talking to your client about including a price adjustment clause in their contracts could help protect you, avoid inflation risk, and stay within a maximum budget due to unseen market changes for material. If the market settles a client could be presently surprised with a surplus of room in their budget or be grateful they chose to stay ahead and prepare finances for the price increase. It’s important to discuss adding a price adjustment clause to your contract with your client so both parties can benefit in the future from it.
Being a contractor during the pandemic especially has had major impacts on inflation rates like never before. Bringing not only an unstable market but frustration, stress, and unpredictably change. Make sure to stay ahead of the game by following these strategies and continue to stay ahead of the competition to make your clients happy.
