There is no question the construction industry has recovered from where it was in 2009, so why haven’t Maryland construction companies started increasing their pricing? We surveyed nearly 200 Maryland construction contractors in the 2017 Maryland Construction Industry Survey, and over half of respondents said they didn’t increase their pricing in 2016.
Now, more than ever, is the time to increase your company’s prices, and those who fail to make increases will end up paying more in the long run.
Costs will rise
There is no “maybe” about the reality of increasing material costs. As the amount of work increases, so will demand for resources. The Turner Cost Index, which measures costs in the non-residential building construction market in the United States, has found that costs increased 4.96% between the second quarter of 2016 to the second quarter of 2017. For a company that spends $250,000 in material costs, that’s an additional $12,400 a year.
Learn what other Maryland construction contractors have to say about the industry and the future of their construction business.
This increase not only includes costs for materials like wood or steel, but also human resources in the form of skilled labor. 62% of Maryland construction contractors say their #1 concern for 2017 is finding and retaining good employees, and for good reason. As the market continues to recover, skilled construction employees will have more leverage than years prior.
Companies who want to retain their top staff must commit to paying their employees competitive wages, and the only way to minimize the impact on your bottom line is to up your pricing.
Tips for raising prices
While all signs point to raising prices, many construction companies will continue to waver. Much of this apprehension has to do with the fear of losing business, especially to a competitor who may still be getting plenty of business with rock-bottom, post-recession pricing. Here are some tips on the best way to get your prices up (without losing business):
- Explain the situation
One bad way to go about price increases is to blindside customers with a huge price jump on their next bill. People want to know and understand why the price for your service is going up, and lucky for you, you have some pretty visible evidence. New construction projects are cropping up around the country at a rapid rate, only helping your argument on the rising demand of service and associated materials.
This is also a good time to remind customers just how long it’s been since your last rate hike (and if that was in 2009, that was eight years ago!). Customer loyalty is undoubtedly important, but customers will have nothing to be loyal to if your business can barely break even. There is always the risk a customer or two will walk out the door when prices go up, but you have to hold firm in your propositioning. You are providing a high-quality service, with high-quality materials and staff, and that requires a bigger budget than substandard work from a much cheaper business.
- Evaluate your current service
Before you start increasing prices, take a minute to ask yourself – are there areas where we could be doing better? If your business has been struggling on the customer satisfaction front, raising prices without addressing existing concerns could result in major pushback, and rightfully so. Happy customers will or can be convinced to pay more. Unsatisfied customers won’t be able to get to the door fast enough.
- Give notice
Price increases should never be made after a contract has been signed. If you are performing reoccurring work for a client, and their contract is almost up, send them at least a month’s notice so they are able to get their ducks in a row. Springing last minute increases, especially on a repeat customer, will leave a bad taste in everyone’s mouth and may dissuade them from doing business with you in the future.
- Have confidence
One big mistake small to mid-size businesses make is apologizing for price increases. That’s not to say you shouldn’t have empathy for customers (after all, they’re trying to do the same thing as you – be diligent about their funds), but that doesn’t mean expressing guilt over your price increase. Explain your reasoning; express understanding when encountering pushback; but don’t undermine yourself by apologizing for making a sensible business decision.
Still on the fence?
If you’re still in need of some convincing, download a free copy of our executive summary of the results of the 2017 Maryland Construction Industry Survey to get a first-hand look at the data showing improving industry conditions and what’s coming down the pike.