Steel products, oil based products, and concrete products are at or near an all time high. This includes steel studs, rebar, wire mesh, nails, steel construction connectors, asphalt roofing, sealants, concrete bag mixes, and blocks.
Lumber prices are at or near a five year low. While we are seeing some slight increase in prices, we are still down significantly over the last 18 to 24 months. See link for a clear comparison.
A $10,000 truckload of lumber that sold in the past at a 20% margin added $2,000 in gross profit dollars. Today that same mix of materials at a 20% margin may only yield $1,000 in gross profit dollars and sell for $5,000.
How should LBM managers react in this market? Below you will find 10 things that you can do now.
1. Increase Delivery Charges by 25%. It is easier to move your delivery charges up when fuel is rising as opposed to falling. If you don't impose a delivery fee and bundle the cost into the products, then move your prices up to compensate for the additional fuel expense. If you impose a delivery charge of $10 and you move to $12.50 will you lose customers to your competitors?
2. Move Steel Prices Up Now. Don't wait until you get the price increases from the vendor. This should include rebar, wire mesh, nails, fasteners, metal roofing, steel studs, metal fencing, metal doors, and other products that contain metal. If your vendor passes along a 15% increase to you, why can't you move your prices up 16%, 17%, or more? Also, review any oil based products like asphalt roofing.
3. Review Your Pricing Strategy. Can you move your margins 2% without tipping off the customers? See my column on Transparent Pricing for instructions on how to move the lesser selling items up in margin without touching the top movers, achieving an overall 2% increase.
4. Complete a Cost of Doing Business Survey. Now for a $125 investment you can compare your numbers to the other dealers in the country and see how you stack up. Where you can you improve your ratios? I'm managing a survey for several regional LBM associations; click here for details. The National Lumber and Building Material Dealers Association's LBM Institute also is doing a survey. Visit www.dealer.org for details.
5. Perform structured employee evaluations.Click here for details. During a recent technology speech, I received more comments about employee evaluations than technology. The old saying is true, "It is all about people."
6. Consider a pay for performance system for drivers. Stop compensating your drivers with overtime for slow deliveries and lollygagging. The combined costs of equipment, benefits, insurance, and fuel, must be managed as well.
7. Invest in a GPS system. This will make it possible for you to monitor your drivers as you make the transition above in #6. It not only makes sense to drive the most direct route because of time, but it also makes sense to not waste fuel backtracking for missed turns or simply being lost. This can be amplified on toll rolls where a toll is involved and the next exit may cost more than the driver's wage that day. Contact your computer vendor for options that will integrate with your software system.
8. Train, Train, Train. If you business is off from last year, you still have fixed overhead. Consider using your time wisely. Teleseminars are a cost effective way to train people without the time or hassle of travel.
9. Keep your accounting in balance. As we have seen sales decline in the last year, people are more likely to put their hand in the cookie jar. If your inventory counts are not accurate, you do not have fences or security cameras around your facility, or if you do not have accounting controls, you may be a victim. If your competitors increase their controls or security and you do not, you may attract their problem people.
10. Invest in your customers. Know more about your top 10 customers than they know about themselves. Work with them to make their business profitable and help solve their problems. Help them find leads. Stop using price as a weapon and convert to selling benefits and features. It is not rocket science, but it will require training and the continual development of relationships.