Merry Christmas! Price Increases?
Mike Murphy
You can tell that the economy is getting better when price increases begin to shout from the FYI Industry Briefs section on the front page of The NEWS. If you look back through a few weeks of the magazine you will find enough of these to fill a stocking on your fireplace mantle. And, if you missed them, don’t worry. There will be more in the coming weeks.
Some of our readers may have surmised that a couple of times each year, I am uncharacteristically clever enough to be sarcastic. However, this is not one of those times.
Really. It has been nearly 18 months since a slate of significant price increases have been foisted upon the distributor and contractor market channels. It might sound kind of bad, but it’s really not. Since the beginnings of the recession - and, let’s stop calling it Great; since when was a recession great? - consumers began clutching their purse strings. Businesses had a very difficult time passing on price increases.
Many of you will recall from some arcane economics class a couple of crazy sounding theorems: Some unemployment is good, and some inflation is good. Stagnant economies don’t handle price increases very well. Our economy is just now peaking out from behind the warm blankets where we have been hunkering down through some tough times. Everyone got lean, some got mean, and some went out of business.
Now, it appears that many of the manufacturing companies are seeing enough light in the tunnel to begin to operate in business-as-usual mode: A price increase every couple of years to keep up with rising material costs, some reinvestment in tooling, and more money spent on research and development. It’s nice to see things getting back to normal.
NOT IN MY BACKYARD
There are certainly those who will disagree with the good fortune associated with price increases. After all, all business is local, and there are places around North America where it may indeed be very difficult to pass along price increases. It is certainly a balancing act to determine how much any given market will bare with regard to pricing. However, a case in point: There were two very well-run HVAC businesses that I am familiar with, which went out of business this year. “Well-run,” you may snicker? How did they go out of business?There is probably more than one reason; nothing is ever simple in a complex business. But, lack of operating capital usually shows up somewhere high on the list when post-mortems are done. Would a price increase have made a difference? Would a series of price increases over a few years have made a difference? Would it have been better for these failed businesses to enact a price increase, perhaps lose a few customers, but gain better profitability?
The difference in changing the top revenue line and making changes that affect the bottom line are tremendously different. Getting lean during tough times - trimming the fat - is a common practice, but it is not always enough to work on the bottom line when economic downturns hit you in the face. Surviving and thriving takes more than cutting expenses; it requires growing the business. Sometimes, growing the business may be as uncomplicated as a 3 percent price increase.
When the wind howls at your cabin door, and the cold blankets your city, pull out your pencil and do some quick math during the holiday season. What would an additional 3 percent look like for your business? Would it allow you to keep one employee that might otherwise be cut? Would it knock down interest on a loan that is holding you hostage?
Generally, business is perking up and the price increases currently being announced are a testament to the fact that it is time to pull off the blankets and grow this industry again. As the 2011 business year comes into focus and 2010 flows into the past, The NEWS hopes for all of you good times.
Publication date: 12/27/2010
