Material Price rises Risks Builders Profits
With an improved and relatively stable economy, house builders, property developers and general builders are being advised to keep a keen eye on their margins or risk making a loss throughout 2016.
It follows a continued increase in the cost of materials as demand outstrips supply across the build sector, with building contractors in particular seeing cost inflation eroding profits.
The current climate of material prices for housebuilders
Figures from one merchant alone last autumn showed increases in the prices for drainage of 8%, worktops of 5 % and 2 – 5 % on damp proof membranes.
This followed other increases where the cost of bricks were up by 13 %, concrete lintels up by 10 %, engineering bricks up a massive 30 % and blocks up 13 %.
Figures from the Office of National Statistics taken from October 2015 painted a similar picture with bricks costing 5.5 % more than a year ago and pre cast blocks and bricks up 4.9 %.
What has material price rises meant for builders profit margins?
The erosion of profit margins has been magnified by the fact that many builders price jobs months in advance of starting on site, and with materials increasing in price during that time, has meant a further squeeze on profits.
This has been heightened further by the fact that many use out-of-date price lists to quote for projects in the first place so that potential profits are eroded even more. And with the sector experiencing significant monthly price rises on a wide range of materials, compounds shrinkage in margins with sharp rises in labour costs.
What can home builders do?
However, those who have taken advantage of estimating services that cater for daily price increases from leading builders merchants are much better placed to a) be on top of latest prices and charge todays rates and b) build a trusting client relationship than those who quote low prices initially and then try to make back money on the job by charging extras for work.
Having the confidence that the price is right at the beginning is an invaluable position for a builder to be in and being able to give a clear breakdown demonstrating prices helps reassure the customer that the quote is as accurate and fair as it can be. Plus, a good client/builder relationship is likely to encourage repeat business and recommendations!
By providing a true and accurate cost at the very beginning not only builds client trust but ensures your firm delivers the project at the price agreed at the start. No construction company wants to be springing cost surprises on their clients half way through the job. It’s unprofessional and only results in messy disputes and bad recommendations to clients friends.
Having a clear and unchanging price from the start is a practice endorsed by the Better Business Group which says that discerning customers on average are prepared to pay 10-15 % more for a hassle-free experience and are inclined to pay more for their goods and services from reliable and trustworthy companies.
The group also claims that most builders charge around 15% less than they should for the quality of work they are producing which again will impact on the bottom line.
How does the HBXL Estimating Service do it?
It means the team create estimates knowing that the estimate they produce is up-to-the-minute and totally correct.
The Estimating Service also help their savvy builders ensure the right materials are on site at the right time as they provide management documents such as JIT material schedules. This helps ensure the build programme is kept on track, on time and on budget.
How can HBXL’s live material prices help other building firms?
Joanna Mulgrew, director at HBXL said: “It’s vital builders develop a work smart mentality otherwise, having ridden the worst economic recession in living memory, all that hard work would have been for nothing.
“Using live builders merchant’s price lists via the internet means all estimates produced by the HBXL Estimating Service are the most up-to-date prices and the most current labour rates.
“This ensures the customer gets a true cost and the builder makes the best profits on any job.
“This has a big impact on margins and those builders wanting the good times to roll would be well advised to make the most of the HBXL Estimating Service that helps them quote accurately and make a decent profit.
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