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Top 8 Ways Contractors are Dealing with High Material Costs

 

In case you haven’t heard, material costs are spiking—and that’s putting construction businesses in an uncomfortable predicament.

Many contractors are dealing with these sky-high prices by passing the cost onto their clients. For customers, this means it’s more expensive than ever to build or renovate a home. And for contractors and construction business owners, it means profit margins are constantly in jeopardy.

But what if there was a way for you to not only overcome the material cost hurdle, but actually increase your profitability?

Well, there is!

In this blog post, we’ll go over the root cause of this construction material crisis and offer eight practical cost-reducing solutions that don’t include digging deeper into the customer’s wallet.

 

The Root Cause of Rising Construction Material Costs

The emergence of the novel coronavirus in 2020 shook the construction market to the core. As consumer demand rebounded with a vengeance in 2021, we saw waves of labor and supply shortages. Now contractors are struggling to keep their heads above water as more and more people seek to resume home building in 2021.

This is especially true when it comes to lumber—one of the most essential building materials. Many lumber mills shut down in the midst of the pandemic, disrupting the supply chain and causing shortages once the economy started back up again. And as we all learned in high school economics, when demand outweighs supply, price hikes are bound to happen.

According to Business Insider, lumber costs are up an astounding 200% since the beginning of the pandemic. The same trend holds true for the housing market itself. According to the National Association of Home Builders (NAHB), the average single family home is now $24,386 more than it was in April 2020.

As a result, contractors have started building fewer homes while charging higher fees. But there are other ways to keep your books balanced amid so much market uncertainty. Here are eight cost-reduction strategies you can employ right now.

 

8 Cost Reduction Strategies for Construction Companies and Contractors

To be as profitable as possible, you need to work smarter, not harder. This means looking for ways your current assets can save you time and money.

 

1. Minimize Vehicle and Equipment Downtime

One of the worst feelings in the world is not being able to use the assets you have at your disposal. It’s like buying a brand-new ski jacket only to find out that your family trip to the mountains has been canceled.

Properly functioning equipment is critical to any construction job. But like the truck you drive to work every day, your construction equipment and vehicles require regular maintenance. Otherwise, you may be looking at unplanned downtime and a delayed work schedule. You might even have to fork over extra money to rent a replacement. In fact, just one day of vehicle downtime can cost you anywhere from $448 to $760 per day, according to Work Truck Online.

To reduce downtime as much as possible, make sure you’re tracking usage and mileage and scheduling routine maintenance at the appropriate times. One way to do this is by installing a GPS tracking device on each vehicle or implement and using it to keep track of the number of active hours.

 

2. Combat Asset Theft and Misuse

According to the National Equipment Register, the total cost of equipment theft ranges from $300 million to $1 billion annually. To top it off, less than 20% of stolen assets are ever recovered.

By harnessing the power of location tracking, you can significantly raise your chances of being in that 20%—and maybe even stop a would-be thief from stealing your stuff in the first place.

GPS tracking technology allows you to see where your vehicles, equipment, and other items are in real time. If you want a shot at recovering a stolen asset, finding out its location is your first and most important step.

Tracking technology also gives you a leg-up on making sure your crew is staying on task. Many devices allow you to monitor risky behavior like speeding and even unauthorized equipment use.

 

3. Opt for Alternative or Recycled Materials

When budgets are tight, taking advantage of alternative or recycled materials can save you a pretty penny.

When hashing out project details with your clients, bring up the idea of using alternatives that could save you both money. (Check out this post for a few ideas!) While not everyone will oblige, others may be happy to know they can keep more cash in their wallets than expected.

Even if a client opts not to use alternatives, certain materials can be recycled without losing quality—steel, plastic, wood, and concrete, just to name a few.

 

4. Reserve Change Orders for the Development Process

Change orders—a.k.a. last-minute revision requests—can make a building job way more stressful (and expensive) than it needs to be. As an experienced contractor, you already know all about change orders. You might even expect them. But if your goal is to cut back on costs, it’s best to establish a limit.

While necessary in the case of emergencies and company-made errors, the majority of change orders should be limited to the development period. These include late requests for small changes and upgrades, which might seem doable at first glance, but put a strain on contractors in more ways than one. Your time, money, and supplies are all at risk of over-investment.

According to EBA Engineering, “Most change orders result from a sloppy or ambiguous statement of work (SOW).” So, to keep change orders at bay, it’s important that your SOW explicitly states “the work to be performed, location, timeline, deliverable schedule, performance standards, and other applicable special requirements like security.”

 

5. Track Asset and Equipment Use

We’ve all done it: invested in something we swore we would use, but never ended up getting our money’s worth. If you’ve acquired a piece of equipment that you use less frequently than that crushed velvet coat in the back of your closet, it could be costing you dearly.

By tracking asset use, you have an accurate record of the equipment you pay for versus the equipment you use—all laid out in plain sight. You can easily pinpoint the items you can remove or replace, as well as discover which equipment you need but don’t yet have.

This is especially useful for contractors who choose to rent equipment. While renting has a myriad of benefits, leasing the same tools too many times can cost more in the long run than owning them. (To learn more about the benefits of renting versus owning your equipment, check out this blog post.)

 

6. Pay Less for Commercial Auto Insurance

Insurance can be a real thorn in the side, especially after a theft or accident. Theft, specifically, can haunt you for years with rate increases of 20–40%. And in most cases, simply switching to a new provider won’t cut it, as most consider past incidents when calculating premiums.

With a little bit of research, though, you can score commercial insurance discounts of up to 25%. For example, if you use GPS tracking devices that will help you recover stolen items, 21st Century Insurance will knock 15% off your comprehensive coverage premium.

Nationwide and Geico offer similar anti-theft discounts when you install tracking devices, with Geico providing as much as 25% off. Learn more ways to save money on insurance here.

 

7. Enlist Employees to Prevent Theft and Improve Efficiency

Your core values should be shared by all your employees. After all, they are the backbone of your company. You—and your clients—rely on them to get the job done.

Employees who don’t know or value the company mission are far more likely to cause accidents due to careless behavior or stall your team’s progress due to a lack of efficiency—all with your time, money, and name on the line.

One super-easy way to promote theft prevention, worker integrity, and efficiency among your employees? Install a GPS tracking system.

We’ve already covered how tracking devices enable you to quickly recover stolen assets and even lower your insurance costs. But when employees know these devices are in place, they’re more incentivized to operate safely and efficiently throughout the day.

Plus, the data GPS tracking systems supply is extremely useful for you as a business owner or manager. You can use it to inform better security and productivity practices based on your business’s unique needs.

 

8. Renegotiate Prices with Subcontractors

With so much volatility in the supply market, the prices of certain equipment, supplies, and resources can rise and fall on a whim. And odds are, they have.

Starting new projects without reevaluating market prices for your chosen materials can cost you big time. While you’re still paying last month’s price, you could be saving a few bucks by meeting with subcontractors to renegotiate.

 


Building may be booming, but that doesn’t mean business is easy for contractors and construction companies. Rising material costs—along with labor shortages—have made it tough to maintain financial stability. But with these eight cost-cutting strategies, you can start hammering your way through more projects without breaking the bank.