Material Trends: More Options, More Sales
At Waterford Business Solutions, we work with multiple contractor industries in all areas of the country. We have over 200 clients, providing valuable insight into sales and costs nationwide. These industries include HVAC, plumbing, electrical, landscaping, cleaning, power washing, construction industry, and other home service professionals.
In the past few weeks, we’ve reviewed Sales and Labor Trends. While labor generally accounts for 33% of a business’s costs in these industries, what about the other costs and your bottom line? What trends are we seeing in materials, especially?
Up, up, and away with inflation
Across all our key industries, we are seeing material price increases. While these increases are not as severe as in prior years, they still increase. The most significant impact we see for our clients is that when material costs rise, their prices do not change.
To combat underselling, businesses must review the cost of materials compared to their sales. Costs include equipment and small materials. It’s vital to update these numbers frequently to maintain a 10% margin on supplies.
Whoever is in charge of purchasing should throughly review items sold at cost. Businesses must ensure they aren’t losing money on equipment and materials. Remember, even seemingly small losses can add up across all customers, so being cautious and attentive is crucial.
Material costs account for 20% to 30% of the expenses for an HVAC, plumbing, and electrical business. At most, that percentage should reflect 33%. You can have up to 33% if your company still shows a healthy 20% net profitability. These percentages will help us determine whether the pricing of materials gets billed correctly, providing reassurance of your company’s financial health and confidence in your pricing strategies.
Other tasks that small businesses should complete to ensure that materials are not getting out of hand include ensuring that inventory is being used and not sitting for long periods of time and that warranty items and parts are actually being paid out from the vendors.
Sometimes, it Pays to go Cheaper.
Another trend we see, also discussed in our SALES BLOG, is customers tightening their budgets and spending less. Regarding materials, that means ensuring your business has various options for those who want to spend less. Many of our clients put a higher premium value on themselves by offering name brands, for example, by focusing on selling Lennox or Trane brand HVAC units.
It’s great to market yourself with a quality brand. However, that is causing issues because of the price point of the materials. The higher price point allows competition to undercut them because they have cheaper equipment and materials, passing on the “savings” to the customers. These units can be hundreds to thousands of dollars more affordable, which is a big difference when getting estimates.
In prior years, we recommended having a good, better, and best option. This year, we recommend adding an entry-level option for equipment and materials so you do not miss out on sales to super price-conscious customers. Having tiered levels of materials is a great selling tactic because it allows your business to find our client’s price capacity.
HVAC-Specific Material Concerns
The United States EPA new regulations on refrigerants are about to cause a considerable change in the HVAC materials world. The National Association of Home Builders explains that in 2025, newly manufactured residential and light commercial air conditioners and heat pumps will have to use the new refrigerant called A2Ls.
What’s an A2L? It’s a comparable refrigerant to the R-410A; however, it is actually less flammable. Unfortunately, the A2L refrigerants do require a redesign of the HVAC equipment.
Due to these new refrigerant regulations, new installation costs will likely go up because of equipment and any bottle-necking of production. There could be supply chain disruptions due to these new regulations on enviromental impact.
https://www.nahb.org/blog/2024/05/new-refrigerants-hvac
We recommend contacting clients who may need a replacement fairly soon to encourage them to replace now. Early replacements would be the best way to move some older units at a great price for you and the customer.
Spending the Time to Make the Money
Overall, no matter what industry you are in, whether it be HVAC, Electrical, Plumbing, etc, if you are selling equipment and materials, it is worth your time to ensure you know where your pricing is. Even those in what we consider the luxury trades, such as cleaning and landscaping, should ensure they are right pricing their raw materials.
Inventory tracking systems are a great way to do this if you keep parts on hand. If you do not keep inventory on hand, keeping a pulse on suppliers throughout the year will be essential before bidding on a job.
Another time-consuming task that is worth the effort is comparing vendor prices. We recommend looking into any rebate programs, warranty programs, or discounts on bulk sales. Take the time to look into what your vendor can offer you and how you can work together to have a more successful business.
Many of our clients have warranty jobs with vendors like Goodman, but tracking those to ensure you receive the credit is critical. There is a process to apply for it, so please ensure you take advantage of programs like that.
Conclusion
Overall, we will see materials continue to increase as time progresses. Make sure your business stays ahead of that curve with your prices that are passed on to customers. Even with supply and demand, it is rare for a manufacturer to lower the cost when supply catches up to demand. Once the supplier realizes they can charge that price, they will continue to do so to get the highest profit possible.
What’s vital for clients is to track those metrics, track material margin there regularly, and have solid books. These are key factors in being able to make quick changes whenever needed to keep your business ahead of any material price changes so you’re not losing any money on materials, which should at least be a pass-through cost.
There are many overlapping factors regarding sales, labor, and materials. Please review our SALES and LABOR blog for more guidance on the trends Waterford is seeing for businesses like yours.
Check out our youtube video Material Trends: More options,More Sales with James to give you a first hand recap
If you need additional help or have any questions, Waterford Business Solutions is happy to help. Feel free to call us at 864-351-0852 or email us at Info@WaterfordBusiness.com.
