August 22, 2022

How to manage your material costs for your service business

Text in front of pile of wooden planks

The cost of construction materials has reached a 40-year high, with the cost of concrete, steel and timber increasing most strikingly, going up by 64%, 52.7% and 30% respectively.

Those are some serious numbers to contend with. When you factor in constant variations in price, and labour shortages resulting from 244,000 fewer workers in the construction sector compared to three years ago, you may feel there is reason for concern.

However, despite these issues, demand for service workers is higher than ever with reports finding demand to be up in excess of 40%. This means that despite the challenges, there are still plenty of opportunities for your trade business, it’s just about managing your prices carefully.

To address these issues, we have picked out 7 top tips you should apply to make sure your prices can keep up with market changes.

1. Educate your customers

You may be surprised to learn that only 22% of Brits are aware that there is currently a materials shortage impacting the UK. This ignorance can cause problems when trying to negotiate prices with your customers.

It is important that you communicate to your customers the very real strain on the service industry and how this impacts prices for your business and the quotes you provide them. By educating your customers they are more likely to be understanding of changes (and increases) in prices.

2. Add terms and conditions to your quotes

When you’re creating your quotes for your customers it’s important that you include terms and conditions that specify that your prices may change. This means that if the price has gone up from your original quote when you go to buy your materials from the vendor, then you are able to adjust your prices accordingly, without surprising and upsetting your customers.

3. Review your quoted prices before making a purchase

Once you’ve quoted a job it’s easy to forget that prices may shift from when you first created the quote and when you actually purchase the materials. Making sure you build a final review into your processes is very important, otherwise, you may find that the prices your suppliers provide do not match your quotes.

Double-check your prices and save yourself the pain of having to take the hit on changing material costs or awkward conversations with your customers

4. Shop around

You probably have a favourite supplier or suppliers, ones you trust and know provide quality materials. However, don’t let your loyalties or the convenience of habit dictate your prices. It’s important to check out alternative vendors to make sure you're getting the best deal possible.

Sometimes you may decide cheaper materials are not worth it, but it is always valuable to check and know what options are available.

5. Consider alternative ways of purchasing

Sometimes it might be necessary to get creative in the ways you manage material payments. Exploring options such as pre-buying materials or seeing if your customers might be open to buying the materials and sending them to your facility, can all help to mitigate costs.

Keeping an open dialogue with your customers and being transparent about your issue can go a long way in helping you find a solution. Ultimately your customers want you to succeed as much as you do.

6. Automatically keep your prices up to date

When prices are changing regularly it’s very important to make sure you keep on top of them and reflect the latest costs in all your quotes. Doing this manually can be time-consuming and makes it easier to make a mistake.

The best thing you can do is use a quoting software that automatically maintains the correct markup and margins on all your materials. With technology like this, whenever you update your material costs all your quotes automatically update to ensure you still make the money you need.

7. Bulk buy

This option might not always be possible, but it ties in to point 5. You may need to think of new ways that you can store your materials or group together with other tradespeople in your industry so that you can share materials.

By buying in bulk you can save on the cost of materials and ensure you have a decent supply, helping reduce the impact of material shortages.

Other ways to save money

Rising material costs are a real issue for service businesses and understandably this will continue to be a point of concern in the coming months and years. However, as we’ve sort to show, there are steps you can take to mitigate these costs.

Part of this lies in how you manage your materials, but it’s also important to check to see how you can look for savings throughout your business.

Consider how you can make productivity improvements such as digitalising your business processes and looking at ways your business can operate more efficiently. A great place to start is by looking at your CRM. The right tools can make a big difference and save you a considerable amount of money.