Inflation and increased business expenses across the board will have a major impact on profits within the green industry this year. It’s not the time to panic, instead put your attention to your pricing strategy to ensure these expenses are being passed on to the customer. This year is a perfect example of a time that you my may need to pivot or change processes within your business to maintain profitability. This year may expose or highlight faults within your pricing and estimating methods. An accurate estimating and pricing method is key, but there needs to be a way to periodically check this. The best way to check this is to produce monthly financial reports, and analyze trends. If you are not getting frequent financial reports and data in 2022, then you will not be able to adjust to changes that this year may bring.
Did you increase pricing enough?
Companies across the country have increased pricing already for 2022. Months have already passed by from the start of the year, and we have already seen changes with the economy since then. There is not an exact science to a price increase, but there are techniques to make it as accurate as possible. Use your past financial data to help, but also closely observe the effects the price increase has on your business thus far in the year. Check out this article on price increases.
Will you need to revisit pricing conversations with your customers sooner than one year?
Many of our clients have already done this in previous years, and we expect to see more of this in 2022. It could be tough to assume exactly what this year will bring, and this gets more challenging the further you forecast out in the future. Also, there is only so much data and information we have at the start of the year. Be transparent with your customers about this. Having highly accurate pricing means that you need to have highly accurate and timely adjustments!
Is increasing pricing in 2022 a choice?
No, our view is that it will be necessary to remain profitable. Keep in mind that there is a limit, don’t overprice unless you are prepared to lose that account. Base your price increase on your numbers!
What is the most direct way to counter inflation and increased business expenses?
Pricing changes! Which of the below estimating methods do you use? Now is the time to fine tune your estimating strategy:
– Single overhead recovery system (SORS)
– Dual overhead recovery system (DORS)
– Overhead and profits per hour system
– Multiple overhead recovery system (MORS)
– Factoring method
How do I counter higher wages?
It’s no secret, employees are getting paid more and more. Not all employee related expenses involve the salary, put attention to improve efficiency in onboarding, training, and recruiting. Also, keep in mind that field labor and administrative labor can be a combined 40% to 50% of revenue. Although price adjustments will be key this year, it is just as important to ensure your team is staying productive. Small changes in your systems can go a long way!
How do I control material’s expense?
There are indirect ways to reduce the negative effect increasing materials expense will have. Are there better terms that you can get with your material’s vendors? If not, It may be the time to search for a vendor with better pricing. Better terms can help cash flow, and can outweigh some of the increased materials expense. Here are some important points when negotiating better terms with your vendor:
– Approach the conversation as a win-win relationship
– Understand what the vendor wants
– Have the conversation with the right person
– Aim high, settle lower
– Be sure to pay on-time, you can leverage this for future negotiations
Monthly reports are great, but do you understand the key takeaways?
Do you have an accountant that not only provides you with the data, but also goes over the details with you? It may not make sense for you (as the owner) to dissect every aspect within the reports. Instead, have your accounting team highlight the important data, KPI’s, and trends to keep an eye on. Analyzing your reports will give you insight into the effectiveness of your pricing strategy.
Time goes by fast, especially the spring rush! Its important to examine how your company performs, so you can adjust throughout the year. Your estimating and pricing strategy will have a huge effect on your profits this year. Give your financials the attention they need to make for a successful 2022! For more information on our accounting services click here.