The past few years sure have been a roller coaster when it’s come to construction costs. Shipping problems, supplier shutdowns, product shortages and more have all contributed to some of the most volatile prices the industry has ever seen. Your construction estimating software might have been working overtime, but if you manually enter your pricing, you’ve probably been doing a lot of updates!
If you were hoping that 2023 might be a better year, you might be disappointed. Here’s what you need to know about economic predictions for next year that are likely to affect your construction business.
The biggest problem with the supply chain is everything. That is to say that until the pandemic, it was working because everything was just adequate enough to keep things moving.
Then Covid happened, and one thing after the other started going wrong. This resulted in backlogs and bottlenecks at every step of the process, and according to those in the know, we won’t be back to normal in 2023.
There is some good news, though. Many distributors in the United States and elsewhere have been ordering and holding more stock than normal, so end users and contractors might not feel it as much as they did over the past two years.
However, you should always ensure that your construction estimating software is programmed with a little extra cushion, just in case material supply derails your work schedule plans.
There have been recession rumblings throughout 2022, and it seems that it’s still expected to happen in 2023. GDP growth forecasts aren’t looking great, inflation is up, and interest rates are rising. There are several ways this will affect the cost of construction.
First, any debt that your construction company carries will become more expensive to service, which will affect the costs you have to pass on to your customers.
Inflation also affects raw materials, fuel and shipping costs and more, all of which will have a direct impact on the cost of construction.
Employees also need to be given the cost of living increases, which automatically increases your direct labor costs.
Finally, there will be fewer people willing to take on new debt to finance renovations and additions to their homes. So there’s likely to be less work for construction companies and renovators, which will make it a buyer’s market.
As if supply chain problems and inflation-related costs weren’t enough, there’s an ongoing labor shortage and cost crunch that is hitting construction companies across the spectrum hard.
First, we had the so-called “Great Resignation,” where people chose to walk away from jobs to start their own businesses, learn new skills or change careers. Now, many parts of the world are facing “The Great Retirement,” where greater numbers of skilled employees choose to retire. With the aging workforce in North America, this could be another staffing disaster.
At the same time, fewer people than ever before are choosing to get into the trades. So there’s a much smaller pool of talented replacements for the people leaving the workforce. As with material shortages, the tight labor market means employees are getting higher wages and salaries and more perks and benefits. All of which will affect your construction company’s bottom line.
If you’ve read this far, you probably think it’s all doom and gloom and that there are ever-increasing costs around every corner.
However, while it’s true that costs are going up, it’s also worth noting that some of the world’s largest companies – including Proctor and Gamble and others – started during the Depression. Even with a recession, there’s still hope, and there are still ways to protect your company. Here are a few steps you can take right now.
1. Reduce Your Debt
When inflation goes up, so do interest rates, which means debt will cost you more. The best way to get ahead of these costs is to reduce your debt as much as possible before debt-related costs go up.
Sell off equipment or vehicles that you don’t need or use, and use the proceeds to pay down property mortgages and other debts. Put stricter limits on company credit cards too. It’s shocking how quickly these bills can get out of control.
2. Improve Your Estimating Systems
If you’re constantly trying to update your construction estimating software to keep up with material and labor cost increases, or worse, trying to keep spreadsheets up to date, you’re wasting time. You’re probably also not being as accurate as you could be because that kind of manual estimating is much more prone to human error.
If you haven’t already switched to a modern construction estimating system, now is the time to do it. You’ll cut the time required to produce estimates and ensure that the results are as accurate as possible.
Have you ever wondered how much time you can save by improving your estimating system? Try our ROI Calculator, and find out!
3. Tighten Up Your Project Management
Very often, even when you estimate projects perfectly, money is made or lost after your crews get on site. Just a few unmanaged delays or productivity issues can derail a project that should have been profitable and have you working just to break even.
If you don’t already have a project management system in place to track progress on all your projects, you need to get one and start using it.
4. Cost Every Job
You don’t usually have to cost every job. If you’re confident that you’re making money on every project and you already cost a random selection of projects, then you can probably skip this step.
However, if it’s been a while since you’ve captured all the actual costs on a project – or you’ve never done it – it’s a good idea to start costing every job for a while.
This will allow you to compare your actual costs against your estimating assumptions, and it will immediately show you if there are any problems in your material or labor calculations. Use that information to make changes to your estimating system, your processes, or both.
5. Implement a Bonus System
It might seem counterintuitive when you are talking about cutting rising construction costs to suggest paying employees bonuses. However, in a tight labor market, companies that reward hard work not only get better results from their people, they attract more candidates and retain their best people more often.
Productivity bonuses or early completion rewards are all great ways to encourage your crews to put in the extra effort to finish jobs on time or ahead of schedule, and that means extra money in your bank account.
The truth is that when there are so many economic headaches on the horizon, it’s hard not to panic. But that won’t help your business to weather the storm.
Companies that approach tough economic times calmly and make common sense changes to their businesses tend to survive and even thrive. At the end of these tough patches, there also tends to be less competition, so these times of economic famine are usually followed by a feast.
Making little changes, like switching to CostCertified – which is the only construction estimating software that automatically crawls supplier websites to get the very latest material prices – is a great way to ensure that you’re always on top of your costs.
It’s going to take a while until global economies go back to normal, and there are likely to be some changes that never fully return to what we used to have. But if you recognize that it’s going to be a little more challenging for a while and adjust your business accordingly, you should be able to get through it just fine.
Contact our team if you want to find out how CostCertified’s smart construction estimating software can help you quote more accurately and get more work. We’re happy to answer questions or schedule a free demo.