In a recent BroTip we told you to “know when to say no” during a prosperous economy. We discussed the potential pitfalls of growing too fast and taking too much work and the devastating effect that it can have on you, your business, your staff and your customers.
Aside from knowing when to say no, there is another equally important step that you should take, whether you decide to increase your volume or continue at your normal pace. Watch your costs and be prepared to immediately raise your prices. In a prosperous economy, labor and material prices almost always increase – and not just by a little. Costs can increase in a day without notice and, depending upon category or trade, the increase can be significant.
Most pros have been through prosperous economies and know that they must raise their price to cover increased costs and make a profit. For most, that’s a given. The biggest mistake most pros make is not raising prices soon enough. By the time they complete their bid and before the ink is dry on the contract with their client, costs can take a big jump, which can strip a job of every dime of profit.
What to do? Keep a regular eye on costs. Job cost all projects and make sure that your prices are up to date. Add an extra buffer to your line items to allow for knee-jerk price increases. If you don’t include a contingency in your cost estimates add one. If you do include a contingency, increase it! Besides helping to offset soaring costs, the contingency will help deal with the material and manpower delays that invariably go hand-in-hand with a brisk economy.
Labor costs, payroll taxes, workers compensation and general liability insurance all will increase as you raise wages and perform more work using your own crew.
Funny thing. Historically, whenever we increase prices we get a flurry of new work – profitably.
The Boy Scout motto really says it all when it comes to a prosperous economy and managing costs — Be Prepared!