How to deal with rising building costs
Inflation - a ticking time bomb
No doubt you’re feeling the effects of inflation. At the time of writing, inflation in the UK is tracking at 9%. But if your building firm is booked up into 2023, you may be surprised – and even a little alarmed - to hear just how big an impact inflation will have on building projects starting in the future.
Inflation has hit the construction industry particularly hard. Builders Merchant News in May 2022 highlighted that building materials have seen significant price increases over the last 12 months. Comparing the first quarters of 2021 and 2022, they reported an increase on Heavy Building Material prices of 17.4%. During the same period, the price of Timber & Joinery products rose by 21.4%. This has affected small to medium sized builders in the UK. The Federation of Master Builders’ “State of the Trade Survey Q1 2022” reported that 98% builders have experienced material cost increases.
If you price up future projects using today’s prices, it’s very likely that you’re under-quoting for the materials - and also the subcontract labour and plant. You will inevitably pay more for these resources in three, six or twelve months’ time when the work eventually gets underway. What’s more, prices will continue to rise for the duration of the project. On the flip side, the customer may assume that the price they were quoted at the outset is fixed – a nightmare scenario for any builder.
Unfortunately, it doesn’t look like inflation will improve any time soon. Builders Merchant News reported, “there’s an expectation that market conditions will become increasingly more difficult as prices continue to rise and consumer spend is stretched further and further.”
3 step plan to deal with inflation
So how can you defuse the inflation time bomb? Here’s our 3-step inflation-busting plan:
1. Make sure you include EVERYTHING in your estimates. You know the old saying, “Look after the pennies and the pounds will look after themselves”. Account for every last screw, every last brick, every last tube of silicone. Also include an allowance for business overheads and wastage, and add a profit margin to your estimates.
2. Quote with project start-date prices. If the project doesn’t start this month, today’s prices are meaningless. Use estimating software with inflation calculators and you can factor in inflation with next-to-no effort. The software will automatically estimate the price increase of each resource by the time you need to order it. Quoting with inflated costs will be the difference between making a decent profit and not.
3. Talk honestly with your customer about prices. Of course, inflation will make the quote more expensive. It’s important to explain to the customer that you’re anticipating price rises. Emphasise that your quote is realistic; other quotes may appear cheaper but won’t necessarily be accurate and will likely be more expensive in the long-run. If you feel uncomfortable having this conversation, remember that the customer wants the work done and they should pay the real cost of the project. You’re not a charity! Sensible builders are already passing rising costs onto the customer. The Federation of Master Builders reported that 83% of building firms are doing just that – and so should you!
Building estimating software will make light work of all three steps of the plan. Software such as EstimatorXpress and Take-off & Estimate Kit will accurately calculate every last material, plant and labour resource required for each task. Both software tools will add wastage, overheads and – crucially – inflation to the quote. And with a detailed and professional-looking quote, you’ll feel more confident explaining the costs to the customer.
Reality check your current quotes with a free software trial
Has this talk of inflation got you worried that projects you’ve already quoted for may be priced too low? You can get a project ‘start date’ price and try out an estimating software tool with a free trial. Here’s how:
1. Start a trial. Download a free trial of estimating software such as EstimatorXpress or Take-off & Estimate Kit by HBXL Building Software. You may want to book an online demonstration of the software to see how it works or watch some how-to videos to get you started.
2. Estimate with today’s prices. Using the software, try out a quote you’ve recently completed, using today’s prices. Compare your material prices against the software’s material library. For reference, HBXL Building Software update their prices monthly. How’s your quote looking?
3. Add inflation and profit margin. Work out when the job is likely to start and put the date into the software’s build programme. Use the software’s inflation tool and the software will work out the realistic, future cost of the job. Add your target profit markup. How’s it looking now? Does the job still look viable?
Don’t be surprised if the estimate generated by the software is higher than your original estimate. This is very common and may be a red flag that you’ve been using out-of-date prices, missing resources or failing to account for wastage, overheads and inflation. It’s a sign that you need to do things differently going forward. Add estimating software to your kit and you can be confident that you’re quoting the right cost, including inflation, at the start of every project. The bottom line? You’ll ultimately make the money you expect.