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Material Costs Skyrocketed in 2022 – How Contractors Can Deal With It

Apr 26, 2023 | Blog, Finances, Job Bidding, Management

The 2023 National Subcontractor Market Report, a report created by Billd, a company that specializes in helping contractors acquire and finance materials for projects, has just been released. The report is based on survey of nearly 900 subcontractors around the country, a pretty good sample size. Some of the main takeaways from the report include the following:

  • Subcontractors paid an additional $97 billion more than expected for materials in 2022.
  • 57% saw declining profits.
  • It took an average of 74 days for contractors to get paid.
  • 32% of the surveyed contractors had supplier terms reduced.
  • Despite all that, 61% of survey respondents had an increase in revenue in 2022.
  • 72% of those surveyed expect revenue to increase in 2023.

In other words, many contractors had more revenue but less profit, largely due to rising materials prices. You can read the entire report at https://billd.com/2023-national-construction-financing-market-report-for-subcontractors.

So what can you do about it?

You’ve got to control your costs! However, with prices constantly fluctuating, it can be challenging to keep your expenses under control. Here are some tips to help you manage your material costs effectively:

  • Plan ahead. One of the best ways to control your material costs is to plan ahead. This involves creating a detailed project plan and determining the exact materials needed for each phase of the project. By doing so, you can order materials in advance, take advantage of discounts for bulk orders, and avoid rush orders that can be more expensive.
  • Negotiate with suppliers. Building a good relationship with your suppliers is key to negotiating better prices for materials. Get quotes from multiple suppliers and use that information to negotiate the best deal for your business. Additionally, consider using a single supplier for all your projects to build a long-term partnership that can lead to even better deals (but don’t be afraid to call somebody else if you need a better deal).
  • Use alternative materials. Depending on the project, using alternative materials may be a cost-effective solution. For example, recycled materials or materials that are less expensive but have similar properties to the original material can be used without sacrificing quality. Just be sure to discuss this option with the client beforehand to ensure they are on board with the decision.
  • Manage waste. Waste management is another critical aspect of controlling your material costs. Avoid over-ordering materials, and make sure any excess materials are properly stored and reused in future projects. This will help reduce waste and save money in the long run. Being strategic in where you place materials on the jobsite is also an important part of controlling waste.
  • Control inventory. Proper inventory management is essential for controlling material costs. Keep track of what materials you have in stock, when you will need more, and how much you need to order. This will help you avoid over-ordering or running out of materials, both of which can be costly.
  • Consider renting equipment. Owning equipment can be expensive, and maintenance costs can add up quickly. Consider renting equipment for projects that require specialized tools or equipment that you may not use frequently. This can save you money on equipment costs, maintenance, and storage. It might be a good idea to get on a rent-to-own plan with your equipment dealer.
  • Evaluate pricing regularly. Finally, it’s important to regularly evaluate your pricing to ensure you are getting the best deal. This includes comparing prices from different suppliers, re-negotiating pricing with existing suppliers, and exploring new options for materials and equipment. Do not bid a job until you know what your materials are going to cost!

Controlling material costs is critical to the success of your construction business. By planning ahead, negotiating with suppliers, using alternative materials, managing waste, controlling inventory, considering renting equipment, and regularly evaluating pricing, you can effectively manage your material costs and improve your bottom line. It doesn’t matter how revenue you have if your profits decline, as was experienced by many contractors in 2022.

ProfitDig makes it easy to manage costs in your job bids, and will even remind you if you have not updated your materials costs in some time. Try it today at https://www.profitdig.com.