Rising material prices are squeezing margins for over half of small building firms according to industry body, the Federation for Master Builders (FMB). A similar percentage of firms have had to pass these price increases onto consumers, making building projects more expensive. What’s more, one third of firms have recommended that their clients should use alternative materials or products to those originally specified, thanks to price increases and a squeeze on availability of products.
The FMB surveyed small and medium-sized (SME) building firms throughout the UK, receiving responses from 341 in total in the first months of 2018.
Self-employed? Get tips on how to manage your finances from Which?. Read on for more on how to alleviate the effect of price rises on your business.
This is bad news all round. Increased price pressures on households mean home-improvement projects become less affordable for many, potentially reducing the demand from consumers. The FMB reports that the problem has worsened recently, with more than twice as many firms passing material prices on to their clients now compared with nine months ago.
Brian Berry, chief executive of the FMB, commented: ‘Material prices have rocketed over the past year. The reason for this could include the impact of the depreciation of sterling following the EU referendum still feeding through. High demand due to buoyant international markets could also be contributing to price increases.
‘What’s particularly worrying is that when prices have increased mid-project, almost one fifth of builders have absorbed the increase and therefore made a loss. Also, if material price increases weren’t enough of a headache for building firms, they are also experiencing material shortages, with wait times ticking up across a range of materials and products. Worst-case scenarios include firms waiting for more than a year for a new order of bricks.’
The FMB’s latest State of Trade Survey shows that almost 90% of building firms are expecting further rises over the next sixth months.
So how can building firms deal with this volatility in the price of materials?
It’s not possible for small businesses to keep absorbing cost increases and reducing their margins indefinitely. At the same time, no individual business can control fluctuations in material costs. But there are two areas where you can work with your customers to alleviate the impact.
Let your customers know about the state of the materials market at the start of a project. Customers will be more understanding if you have to increase your charges as a result of material costs if you’ve warned them of the possibility in advance. The FMB’s Brian Berry says: ‘This makes quoting for jobs difficult but, if builders flag the issue to their client from the outset, and include a note in the contract that prices may be subject to increases, they shouldn’t be left short’.
Keep the lines of communication open with customers, in order to stay on time and within budget.
You may need to swap specified products or materials for alternatives, or clients will need to accept the additional cost.
We’ve recently made the following video about the importance of communication, encouraging consumers to talk to their traders, but it definitely works both ways:
Any alterations in cost from the original quote should be agreed in writing with the customer, to avoid difficulties when you present the final invoice. Our guide to why no contract can mean no payment explores the dangers of embarking a project without having a contract in place. A clear contract protects both you and your customers.