“This year, we are already seeing equipment prices ranging up to 8% and expect parts and supplies will be increasing as well,” reported Stephen Pape, ACCA board of directors member and CFO for Pape Services LLC in DeSoto, Texas.
Indeed, a look through The ACHR NEWS’ 2020 archives reveals a slew of pricing-related manufacturer press releases in the fourth quarter. Announced hikes generally ranged from 3% up to 9%. Most kept their announcements short, but a couple of manufacturers attributed the increases to a variety of circumstances — safety-related measures, raw materials costs, labor rates, and transportation rates, to name a few.
The bulk of those announcements had one other thing in common: The price increases were scheduled for scattered dates across the first quarter of this year.
By early February, Pape Services had already started inputting the new costs into its sales proposal software. As far as what equipment would be affected, the 2020 releases suggest that the hikes are common among the major equipment types.
Andrew Torres, residential sales manager for Isaac Heating & Air Conditioning in Rochester, New York, said that his latest sense was that “generators and fireplaces are increasingly difficult to get” and that “materials like sheet metal and PVC pipe have spiked.”
The planned price increases may be kicking in alongside any early-year supply challenges, but Pape added one thing.
“We have no intention of absorbing any of these increases.”
Volume, Volume, Volume
Holding that line is the best course of action, said Laura DiFilippo, president of DiFilippo’s Service in Paoli, Pennsylvania.
MARGIN PROTECTION PROGRAM: With equipment-related expenses going up but consumer interest in HVAC arguably increasing even more in recent months, contractors agree that this is not the time to let costs force profit margins downward. COURTESY OF GERALS VIA PIXABAY
“We as contractors can’t undersell ourselves just to get work. We need to pass that increase over to the consumer.”
DiFilippo’s team has been discussing these increases with customers since the beginning of the year to try to avoid surprises. While she might have a little wiggle room due to closely monitoring expenses in 2020, “I think that most people understand that prices are rising in many areas, not just our industry, and they will have to pay more now.”
Torres’ approach at Isaac includes some of the same elements.
“You try to hold off on pricing increases as long as possible, all while focusing on process efficiency,” he said. In the time between announcement and effective date, Torres has worked on ordering more in some areas, locking in prices and taking advantage of volume discounts where possible.
Pape said that some larger commercial contractors have pursued this basic strategy even if it meant paying for storage. In addition to buying more, he said some large contractors have purchased equipment and piping earlier in their projects than they might have otherwise. Like DiFilippo, he believes customers are pretty well tuned in to the reality of this pricing trend.
He had one more tip for commercial contractors: know the expiration dates for commercial quotes, and make sure your customers do, too.
Can’t Share What You Don’t Know
Smart contractors may have the impulse to give customers as much of a heads-up as possible about price increases. However, as Pape pointed out, that dynamic also applies to part of the supply chain where the contractor is the customer.
“The main thing we expect from our suppliers is that they let us know when increases are about to occur, so that we don’t get caught with a loss,” Pape explained. He said his better suppliers will give his company a little warning ahead of price bumps.
“In fact,” he said, “I think these advance notices of impending increases have often led to additional sales.”
After a year where inventory challenges led a comparatively huge number of contractors to shift their alliances in terms of supplier relationships, managing price hikes well will be yet another task for distributors trying to build and maintain good long-term customer relationships.
On the other side of the contractor’s business, Pape sees new residential construction contractors, “who may have the lowest margins in the industry,” as being especially vulnerable and needing to update their builders accordingly — although they might have an opportunity to gain back some profit as well.
At the end of the day, Pape said, “the secret to staying in business will always be knowing your expenses and making sure your revenue is greater. This year should be no different.”
DiFilippo shared the sentiment. What some contractors may have done last year in dealing with unexpected PPE-related costs does not apply to the more conventional business scenario of a price increase.
“No business should ‘eat price differences’ just to work. If you run the numbers, you will see that all you did was keep your guys busy while making little or no money,” DiFilippo said. But in an environment of increasing prices, she also sees the opportunity for an occasionally overlooked sales tool to step up for contractor and customer alike.
“This is an excellent time to offer financing at low rates,” she added, “so consumers can take advantage of the 0% over several years.”