When materials and labor make up the bulk of your construction costs, and you receive a letter from your manufacturers and suppliers explaining that a major increase is on the way, you are likely to take a deep breath before you decide what to do about it. (You should probably take a deep one now before reading the rest of this story)
After you read the letter and the anger fades, questions emerge. Are they serious? Will it stick? Are all of the suppliers following suit? Then you have to look at what you will do, and you will ask more questions including: will you pass 100% of the costs to your clients and customers, will you pass on part of it to them, or will you decide that it is wise to absorb all of those costs? You will also likely look at a number of factors like whether the changes apply to everyone in the industry or just one segment like residential or commercial.
That is the situation facing the drywall subcontractors in the US right now. The manufacturers have sent out letters explaining the fact that they will institute a 25% to 30% price increase across the board effective January 2, 2013 and that the new price will be in effect for all of 2013.
Talk about the other shoe dropping. This increase comes on top of a 30% increase last year. No small issue for the residential drywall subcontracting industry, where materials comprise 45% of their cost.
The recession shut down the residential construction industry for the last two years while the banks foreclosed, the market slowed and jobs were peeled away like the layers of an onion. The drywall manufacturers reacted to the slow down by laying off production workers and closing down plants.
The economy and the housing industry are now showing signs that they are in the early stages of the turnaround. While that improvement bodes well for the industry, the reduced capacity and supplies have led to a major price increase that has ripple effects throughout the construction industry. The time to alert your customers is now.
What are you doing to address this price increase?