We had never been so busy. Not only did we have a large backlog of sales, we were staying late at night to complete estimates and the phone was ringing off of the hook. I started dreaming about how much money we would make if we increased our productivity with new equipment.
I put together a plan listing the proposed new equipment; the reduction in direct cost that would result from increased productivity; financing alternatives and an amortization schedule. It was a great plan; the best I ever produced and I was proud of it. When I handed it to my father he studied it for a minute and then said, "let's go get a cup of coffee."
My dad didn't believe in drinking coffee in the office. Like a cocktail in the evening, to him drinking coffee was a ritual, more about the ceremony than the drink. Going for a cup of coffee meant a break from the every day occurrences in the office, driving to a restaurant, sitting down, being served and having time to talk.
After the waitress served us, my dad asked me to explain my proposal. When I finished doing so, he congratulated me on a good job and then said, "We aren't going to purchase any new equipment; what we are going to do is raise our prices." He then explained that after nearly 50 years he knew how cyclical the construction industry was. He opined that the boom we were experiencing was not normal and he didn't want to be paying for equipment that would be sitting idle.
He told me that there are times when you can make good money and when those times arrive you don't want to be saddled with a lot of "cheap" work. With higher margins, you can afford to work overtime or on weekends; productivity--while always a question--wasn't as great of an issue.
We raised our prices and we still got one out of four of the jobs we bid. It was one of the easiest times in my business life: we made good profits kept our crews busy and were not overburdened with work.
The building supply business is in the midst of a depression. However, I believe there will be a time--perhaps sooner than we think--that not only will business improve but will boom. I am concerned that companies are so focused on sales that, when the good times come, they will not have the capacity to take advantage of high-margin opportunities.
How do you know that the market is turning: that the time is right to raise your prices? For my father it was the number of jobs we were bidding and phone traffic. If the phones were ringing and our estimators were grousing about not being able to catch up, he would raise prices. He never worried about running cheap work off; he kept his eye on the prize: the high-margin job.
I have faith that business is going to improve; heck, it couldn't get much worse. The challenge is to have benchmarks that you can rely upon to recognize when it is time to increase margins: Maybe the phone ringing; the number of orders shipped; sales people grousing or just talking with your customers. Whatever, you don't want to be like Bob Hope who once said, "My ship came in but I missed the boat."
Bill Tucker is president of the Florida Building Material Association. Contact him at email@example.com. This column was taken from FBMA's July 9 newsletter.