How Your Contracting Business Can Keep Profits Despite Rising Construction Costs

Construction costs are up. And while it depends on the part of the state you’re living in, you’re probably already feeling the squeeze. It’s tempting to keep your bid prices and estimates down, especially in the early years when you’re still trying to find a reliable number of clients. But when your costs for materials and labor go up, you can’t sacrifice all your profits to make it work. Here’s what you can do instead.

  1. Keep Tabs on Pricing

It can sometimes be very difficult to predict what your prices are going to be one year to the next. When you rely on products from different regions or different parts of the world, changes in global and national politics can dramatically affect your bottom line. The best thing that you can do in this uncertain situation is to watch what is happening and how quickly prices are changing. If you’re relying on materials that are in high demand and not easily found in your area, it’s reasonable to expect the costs for them will go up over time.

  1. Research New Supply Chains

The cost of building was always going to be resource-intensive. Fortunately, the regional dependence of the industry often means that you have multiple avenues to get what you need, when you need it. It’s not always the wisest idea to cut ties with a reliable supplier or subcontractor simply because they raise their rates. But it would also be unwise to assume that the only option you have is the one that you have in front of you. Research your options on occasion, especially each time you encounter a price increase. This will help you confirm that you’re still making the most efficient choice for your business.

  1. Reduce Waste

One of the best things that you can do to deal with higher prices is to find ways to buy less. For example, pros who work in asphalt are finding that asphalt millings are significantly cheaper to buy than new asphalt, with a similar quality and durability. Likewise, looking for ways to avoid using as many materials can make it easier to increase or preserve your profit margins. Sometimes, you can find a way to recycle or reuse byproducts in a way that generates revenue for your business without forcing you to consume more inventory.

  1. Consider a Mix of High-Margin and Low-Margin Services

If you have ever wondered why restaurants charge so much for drinks when they cost so little to produce, the answer is profit margins. Many industries provide a combination of high-margin services that help to balance out their low-margin services that take more time and use more resources. If you can find a way to expand your service line to include things that give you more money without as much work, you may be able to ride out cost concerns with your other low-margin services. This also applies to services you can provide in the slow season, when people are less likely to request big ticket items.

  1. Raise Your Rates

No one wants to tell reliable clients that they have to raise their rates. There’s always a worry that your customers will find somebody who can do it cheaper. However, since so many people enter this industry with a plan to stay in it for decades, not raising your rates isn’t an effective long-term strategy. Instead, try thinking about it as a part of the process and a reason to emphasize value instead of cost. Clients may balk at paying more for a service or product than they did last year or the year before. But if you raise your rates a small amount periodically, you’re less likely to need to make dramatic changes after five or 10 years.

Rising prices is a way of life for people whose industry depends so much on materials. By thinking ahead, you can ensure that it remains a viable business for you now and in the future. For more information about starting your own contracting business, contact us at CSLS today!