Should I Raise Prices?
10 August, 2022
10 August, 2022
When I was asked to write this article, I decided I would do an informal survey. I wanted to know what other successful painting contractors were doing with regards to raising prices — and by how much.
In this article we will explore three factors that should drive your ultimate decision on whether it’s time to raise prices:
Let’s start with what’s on everyone’s mind: Will there be a recession? I am not an economist, but I work with painters and have some intimate knowledge of what the books look like, which gives me a unique view of the issues from an industry perspective.
For example, I’ve noticed that backlogs are shrinking, but not evenly across the board. The contractors I spoke with who are still marketing aggressively are doing fine. Those who rely on referrals and repeat business are starting to notice a decline in incoming calls. I’ve received many calls this year from painters who are starting to feel the pinch and are looking to improve their lead conversion and sales capabilities.
Those I spoke with said they are noticing about a 13% drop in revenue from last year. Inflation is one factor, but another factor was pent-up demand for painting services during the COVID pandemic. Combine that with a shortage of good quality painting contractors and 2021 was no doubt a boom year.
We don’t know for certain the economy will tank, but it’s important to be prepared. Some practical ways you can do that are as follows:
• Build up your emergency fund — three to six months of operating revenue at minimum.
• Take steps to push cash flow in your favor.
• Get bigger deposits upfront.
• Negotiate longer terms for paying suppliers.
• Focus on lower-cost marketing alternatives
• Tap into that untouched database of past happy clients.
So basically, hope for the best but prepare for the worst. The bottom line on the economy is that we are creeping closer and closer to a recession. Your customers are paying more for groceries, gas, clothing and entertainment. This will have an impact on their ability to pay for home improvements. Consequently, demand will no doubt take a hit. Will it cause a recession? That remains to be seen. But this is a good time to apply some of your grandmother’s ancient wisdom: An ounce of prevention beats a pound of cure.
You don’t have to have a Ph.D. in economics to figure this one out — you only need to pull out your wallet or credit card to know that prices have gone up. How high they will go and how long it will last is anyone’s guess. But there are some pretty obvious forces at play here.
Materials are going up. Although we’re not in a recession, inflation is here and it’s ugly. The contractors I talked to are spending 12%-15% more this year on the same materials they bought a year ago. The trades have enjoyed a relatively very low inflation rate over the past decade. As of 2021, however, that seems to be coming to an end. COVID- 19’s presence has turned the supply chain on its head, and there are many other forces at work conspiring against us on this front.
Manufacturing, along with transportation and logistics, is experiencing the same labor shortage as the trades. All this is leading to the fact that manufacturers are having to pay more for production. They are paying more to ship it and more to sell it. That cost increase rolls right down to you, and ultimately, your customer.
The cost of labor is way up. A good client of mine recently went to replace an employee he lost during COVID. It was a decent position that paid $60,000 a year. After hiring several duds, he opted for a more experienced candidate. Now, that $60,000 position will cost him $90,000 if he wants good competent help. Unless he raises prices, it comes straight out of the owner’s pocket. OUCH!!
This all means that you must protect your gross margins at all costs.
Labor is up, materials are up and gas is up. Everybody you spend money with is raising prices. It’s important that you don’t get squeezed in the middle.
What are other contractors doing?
I surveyed a few dozen and got the following responses:
• Did you raise your prices this year? 54% said yes; 17% plan to do so very shortly.
• If you raised your prices, how high did you go? The overwhelming answer was 10%, which is about 30% less than the increased cost of business items.
• Will you raise prices again this year? 79% answered no. They will revisit the issue in late December for fiscal year 2023. The average contractor also answered that they’re seeing a 13%-15% increase in their costs this year.
• What is stopping you from raising prices again? 73% answered that it was a fear that the market wouldn’t support further price increases.
The perfect storm
The thing that stood out for me was the need to prepare for what could be a bumpy road ahead. The economy, inflation and labor shortages all will test your ability to manage, lead and grow your business in the coming months. There will be a real need to get really clear on how you and your estimators should handle this when potential customers wonder why it’s so expensive to paint. Survival will fall to those who adapt swiftly to the changing environment. Those who emerge successfully on the other side will no doubt be the contractors who adhere to the fundamentals of business:
• Leadership that demonstrates a clear vision and can create an inclusive culture.
• Good management structures that can recruit, hire and retain.
• A solid grasp of their finances.
• A strong sales culture that embraces the challenge of selling at higher price points.
• Marketing and lead generation that is strong enough to reach revenue goals.
• Great customer service that will delight and inspire strong reviews.
If ever there was a time to transition your business and prepare to lead it into a successful future that is both profitable and sustainable, the time is … now. Good selling to all of you.
Carl Utter’s sales career spans almost 30 years in all phases of sales management, sales training, sales coaching and consulting. He founded The Training Group Inc. in 2000, where he trained and developed some of the largest painting contractors in the country. He is the author of “Painting Contractors Guide to Doubling Sales Even If You’re Twice the Price.”