So just found out that ABC supply is raising our shingle prices 20% again in two weeks and probably another 10-15% in the next two months after that.
No problem, I’ll just pre-order shingles for my existing contracts and raise my prices to cover the increase. Right ?
Wrong.
Pre-order has been discontinued, and the price increases we have been given so far are not set in stone at all.
So here’s the problem, I have about 8 weeks worth of roof contracts that I have to honor pricing on for my clients. Prolly cant do anything about that at this point. But for bidding from this point forward what is the best way to protect myself from price volatility in a way that doesn’t spook potential customers ?
Naive but refreshing !
Edited 8/4/2008 11:52 pm ET by woody1777
Replies
Either they are exposed to the volatility, or you are.
If it's going to be them, it can be done using some form of a "materials escalation clause" which basically means that the materials will cost what they cost. You can quantify the amount and type, i.e. 20 square of Pabco Premier 40 year or whatever you're using, so they know how many are to be bought.
If it's going to be you... wow, I hate to think of that. 20% now and another 20% soon will wipe you out unless your contracts are really heavy on the labor and the materials are cheap, and I don't think that's the case.
People understand that they have to pay for the materials. I would explain to them that there is volatility right now due to oil and fuel costs. Everyone already knows that. Some will find another roofer who is not being careful to cover his costs. The rest will hire you and pay for the shingles. Make it as transparent as possible, i.e. give them a copy of the invoice from the supplier as backup.
If it's going to be you... wow, I hate to think of that. 20% now and another 20% soon will wipe you out unless your contracts are really heavy on the labor and the materials are cheap, and I don't think that's the case.
Well, fortunately I knew there were going to be big price increases a while ago and so I was able to adjust my pricing in anticipation of that. Not as much as I should have, it turns out, but enough that it won't bury me.
My biggest concern is that even if I adjust for the price increases that I can anticipate, ABC is saying that pricing could potentially adjust every two weeks and that thy have no way of knowing how high it could go.
My schedule is about 8-10 weeks out and without being able to pre-order shingles to insulate myself, I might be paying another 30 bucks a square for materials when I do a job that was contracted months before.
I don't want to panic price myself out of work, but really I don't want to pay somebody elses roofing bill =). Naive but refreshing !
So here's the problem, I have about 8 weeks worth of roof contracts that I have to honor pricing on for my clients. Prolly cant do anything about that at this point.
I'd try to renegotiate all of those contracts, even though it means being direct and open about costs and profit margins with your clients.
No way that you should have to pay for oil price increases that are unpredictable, effecting us all.
I wouldn't expect anyone to be happy but I'd expect them to understand...and pay their fair share.
It's the same as a surcharge added by delivery companies, like UPS. No one likes it but we understand why it's necessary and we pay it.
I'd try to renegotiate all of those contracts, even though it means being direct and open about costs and profit margins with your clients.
If it was really, really bad, I probably would have to. Right now it is only gonna be $100-150 a roof. Which sucks, but isn't going to kill me.
We do a lump sum contract with a provision for time and material repairs. Most of the time the fact that the price is fixed is a selling point for our customers.
We seem to have had a really bad rash of "bait and switch" roofers around here maybe 5-10 years ago. A guy agrees to do the roof for an H.O. for an "estimated" amount but then the shingle they wanted is unavailable and the only one they can get is another 500 bucks, or there were more squares than they "estimated", or the old roof took longer to tear off than they planned, etc, etc. There were three outfits doing this and they all went down in flames about the same time. Took a lot of people for a ride and as a result left me with a very gun-shy customer base.
All of that to say, renegotiating the current contracts is prolly out of the question right now.Naive but refreshing !
All of that to say, renegotiating the current contracts is prolly out of the question right now.
O.K. I understand why you believe it's in your best interest to avoid looking like the bait and switch gangs.
Here's another suggestion, to put the problem in proper perspective for your clients while getting your price increases without making you look bad:
Tell ABC that you can't survive if you're not able to pass on unexpected and unpredictable materials cost increases to your clients. Describe the circumstances and ask them to write a form letter which explains the whys and wherefores of roofing manufacturers' pricing in a way which can be understood by the average homeowner.
Tell them to include recent price increases, with dates. Their letter should be signed by someone in customer service/management who is willing and able to take phone calls and answer questions.
Mail a copy of the letter to each of your clients with a cover letter from you explaining the need for a price adjustment/surcharge.
Mail a copy of the letter to each of your clients with a cover letter from you explaining the need for a price adjustment/surcharge.
That's a good idea. I'll bring that up with my rep and see what he says.
Thanks!Naive but refreshing !
woody,
I can share your frustration with the ABC price increases. They just had one July 15., Aug.1 and then sent a letter warning of the impending one Aug 15. Each has been 7-10%.
They must have much higher turnover than my local lumberyard whose increases are far less frequent. However, in both cases I get letters or phone calls from them regarding the increase. You might see if you could get copies of the letters from the last couple of months and share these with your customers.
Going forward, as others have said, include an escalation clause and use the letter as proof of the continual price increases.
Woody -
I've added a "valid for 10 days" clause to my proposals. The only acceptance to a proposal is a payment of 35% with the signed contract which should come close to covering the cost of materials on a shingle job.
This is a real problem. 50% of the shingles we install are special order anyway, so it's not like I can stockpile. I'm just trying to adhere to the get a deposit in 10 days, order the shingles asap, and hope I beat the next price increase. The local outfits are selling what they have in stock at the old price until they run out. ABC is uping the the price on existing stock.
I've boycotted ABC. I found out that they were supplying shingles to out of town storm chasers at slightly over their cost. The chasers would agree to push one brand (OC) which would raise their quota and push them into a lower price bracket which would put more money in ABC's pocket when they sold to me and other locals at the regular price.
http://grantlogan.net
.......nature abhors a vacuum cleaner.....
I've boycotted ABC. I found out that they were supplying shingles to out of town storm chasers at slightly over their cost. The chasers would agree to push one brand (OC) which would raise their quota and push them into a lower price bracket which would put more money in ABC's pocket when they sold to me and other locals at the regular price.
Whoa. That is majorly scummy. Esp. since stormers are the least loyal and most demanding of all their potential clientele.
Is that just your local branch or is that a nationwide thing ?
At our local ABC branch one of the counter guys is a former roofer. One of our competitors subs to him to do roofs, he carries the insurance ( supposedly) and in turn subs to a "head" hispanic guy who in turn subs to the crew. I have often thought that if I was his boss I wouldn't like the fact that he was competing with my other customers......but they don't seem to care. Maybe it's time to find another supplier........Naive but refreshing !
Is that just your local branch or is that a nationwide thing ?
Don't know. The excuse given was "we had to since they have national accounts".
http://grantlogan.net
.......now there's a Batman.....
cant buy now and store somewhere
cant buy now and store somewhere
I don't have the facilities for storing, transporting and stocking a hundreds of squares of shingles. Unfortunately.Naive but refreshing !
i think abc is hopping on this train as often as possible. how come lowes and hd has only raise there prices about 10% in 2.5 years? i'm tired of hearing the oil price excuse. larry
if a man speaks in the forest,and there's not a woman to hear him,is he still wrong?
i think abc is hopping on this train as often as possible. how come lowes and hd has only raise there prices about 10% in 2.5 years? i'm tired of hearing the oil price excuse. larry
That is probably the biggest beef I have with all this. We did buy half a dozen pallets of weather guard and tar paper to insulate ourselves against the price increases there.
What I can't figure is how a multi-billion dollar company like ABC is completely incapable of doing the same thing.
They are telling us that they don't know how much load X of shingles is gonna cost until it ships from CertainTeed or Gaf because CertainTeed and Gaf don't know until they ship how much it is gonna cost.
I think it's BS. I can buy, right now with my puny bank account, any commodity, in any amount, for a fixed price in the future. Propane, diesel, gasoline, etc.
So, CertainTeed can't do the same thing with the raw materials they are using in their shingles ? Buy six months worth of contracts or whatever.
I'm with you, something smells funky.Naive but refreshing !
You are misunderstanding how/when a suppler like ABC raises their prices. Look at it from a much smaller point of view. Let say the mom and pop shop at the end of the street has 100k worth of inventory and it rotates once a month and they markup everything 100%. That tells us that they need to pay 50k each month for their stock. Lets say they just break even on their bills with the other 50k profit and they have no savings and no way to get a loan. Now, suddenly they get notice that there will be a 10% increase in their wholesale costs. Do they continue to sell their current stock at the same price or do they bump up their retail costs immediately because they are "trying to be fair"? Good business forces them to raise their retail prices immediately to raise the necessary extra cash to continue paying their bill for wholesale goods. If they run out their current inventory at it's current pricing, they will be short 5k when their wholesale bill comes in. To stay in business, they would need a capital infusion of an extra 5k. You should be thinking like that right now in your business. Bob's next test date: 12/10/07
This ties back to the mark-up doiscussion. One of the risks in business is the risk of price fluctuation that needs to be accounted for. In times of volatile prie increases on commodities, a valid consideration in calculating markup is the degree of risk that prices will move up. There are actually insurance type ccontracts in commerial work for large jobs that ccan be written for a known prie to figure in. The small guy is doing hius own actuarials by guess and by gosh though.Back in the seventies, I had good guys letting me know far enoguh in advance about price changes, so my roof bids were based on the higher upoming price. If I bought ahead of the increase then, I made extra profit occasioanlly, while some of my competitiors were wagging their heads and wondering how they ould have got caught in the pinch
Welcome to the Taunton University of Knowledge FHB Campus at Breaktime. where ... Excellence is its own reward!
how come lowes and hd has only raise there prices about 10% in 2.5 years?
That's not the case here. I thought I'd try to split the difference on a job and buy from Lowe's rather than the shingle distributor. Lowe's was a couple of bucks a square more than the distributor. They held out a long time, but when they raised the prices, they really raised them.http://grantlogan.net
.......nature abhors a vacuum cleaner.....
watch hd and lowes.
Shingles are going up and they are going up quick.
Get all the shingles delivered this week... tarp them well and call your insurance agent to cover the materials on site.
Collect deposits from all clients that are locked in. Tell them all that you can limit their exposure to 3% but they need to pay for the materials portion up front due to present circumstances. If not... the contract will increase 10% or whatever you have to charge to cover the expense.
3% will cover your running around, having to contact all the clients etc.
Going forward--fix your contract.
L
GardenStructure.com~Build for the Art of it! Decks Blog
8 weeks is not such a long window that your clients couldn't get delivery today. Have them front the money for the materials and get it all delivered.
If they don't want to prepay for the shingles when you sign the contract, then they have to sign a clause that puts all the risk on them. It's their decision.
Bob's next test date: 12/10/07
Edited 8/5/2008 9:27 am by Jim_Allen
curious, how many of you guys would lower the contract price, if costs were less than estimated?
bobl Volo, non valeo
Baloney detecter WFR
"But when you're a kibbutzer and have no responsibility to decide the facts and apply the law, you can reach any conclusion you want because it doesn't matter." SHG
how many of you guys would lower the contract price, if costs were less than estimated?
That's my main objection to renegotiating my existing contracts. Naive but refreshing !
I've nothing to add to this discussion as some good things have been said already, but I just wanted to point out what a great example this thread in showing how valuable this forum is to working professionals.Good stuff here!Julian
"
"curious, how many of you guys would lower the contract price, if costs were less than estimated?"
I wouldn't. DanT
curious, how many of you guys would lower the contract price, if costs were less than estimated?
I've never seen a reduction in the price of materials, between the time of the contract signing and the materials being delivered.
I have passed on special discounts I received to clients, on numerous occasions...but I wouldn't do it now.
Looking for referrals, it's better to live up to and exceed a client's expectations regarding time and quality. That's easy to do when I avoid building up any expectations in their minds.
bobl
That's what I did this spring.
Prices were going up and I bid a job at a high point. Then the competition made my lumberyard drop prices by about $7/ square.
When I gave them the bill I lowered the materials prices accordingly.
We did well on the labor part of this bill, charged some extra for hidden sheathing damage and I made my markup on the materials.
When it was settled, I saved them about $200. They were suprised and I made money. They are nice folks and I have worked for them before.
Did the same thing on the labor and materials on a job. I did the estimate in a hurry, and I over estimated the materials by about a 1/3. I still got the job.
I knew going in the I had a huge cushion. The job went very well. I told them about the mistake and billed them about $1,500 less than the bid.
They are good friends, they well connected and I am sure that the story has gone around. I made good money on the job and they think I am great.
But, I always put this on the end of all roofing bids.
Material prices are as of August 5, 2008 and may be subject to change.<!----><!----><!---->
Rich
Yeah, I would do that also if prices went down. But it's not likely that'll happen.
But, I don't understand the "bid" on a labor and materials job. It's one or the other. http://grantlogan.net
.......now there's a Batman.....
seeyou
I guess I posted in a hurry too.
It was a bid job. I over estimated the size of the roof. So I bid the labor and materials to a more squares then the roof's actual size.
I just gave them a price, x for labor y for materials and z for landfill.
I could have kept the money. No problem. It was a bid and they accepted the final price. They have been friends for 30+ years. I knew I could come out well ahead and still be good to them.
For me it was the right thing to do.
Rich
Now, everyone that they talk to will expect a decrease from you if you work for them. If you don't discount their final bill, they'll feel cheated. Bob's next test date: 12/10/07
Jim
I knew you would give me a hard time.
That's because you have a city mentality and I have a small town mentality.
I live, work, worship, play and do business (both ways) with my customers all the time.
People know me and they know I will treat them right.
Maybe people will expect a discount, but more than likely they will know I can admit it when I make a mistake and make it right.
Rich
I went thru this in the seventies.
Get advance deposits fdrom your customers before scheduling them.
use the money to keep products bought ahead of price increases.
Keep a darn good line of communications with your sales reps to get advance noitice when prices are going up so your bids can take that into account.
or use a line item in contracts to allow for increase in prie due to materials
This is all related to oil
Welcome to the
Taunton University of Knowledge FHB Campus at Breaktime.
where ...
Excellence is its own reward!
Good points.Maybe it's time to include a line item allowance for shingle pricing. It works fine for toilets and tile...why not shingles? Bob's next test date: 12/10/07
"Maybe it's time to include a line item allowance for shingle pricing. It works fine for toilets and tile...why not shingles?"maybe it's time to consider customer provided material.
bobl Volo, non valeo
Baloney detecter WFR
"But when you're a kibbutzer and have no responsibility to decide the facts and apply the law, you can reach any conclusion you want because it doesn't matter." SHG
woody,
i feel your pain!
currently I pay MORE for 30 year dimensionals--than i did last year at this time for "lifetime" shingles.
30 year dimensionals have about doubled in the last 2-3 years---and i think are up about 60% since last year.
I have pretty much semi retired now from shingle roofing---but new proposals are written with a" proposal valid for 14 days' clause'
In your case---sinse you are talking maybe $100-150 per job--- I would absolutely simply eat the price increase without batting an eye
however---at some time during the project i would have a conversation with the customer--explain how the material prices have escalated this year and how you held THEIR price firm without passing it on---because you felt it was the right thing to do.
your customer will appreciate that---and they will spread the story---it will be good advertising for you.
additionally- I pretty much handle things the way piffen decribed---and everything works out fine
Best of luck,
stephen