Strategies to Maintain Profit Margins Amid Rising Costs
Annie Baeten & Brian Cvetezar
Helpful Reminders in a Period of Changing Costs
Anyone who has attended the HMI Discovery and Training Seminar more than likely remembers the correct answer to Paul DelFino’s question – “why did you come here?” In a fun way the question served as a reminder of why we work. Yes – we aspire for self-actualization and fulfilment in solving someone’s problem but in the end our trailer or mudpump is a tool to generate a profit and provide us and our loved ones with financial security.
We are clearly entering a period where our primary objective of profit can be eroded by rising costs in: materials, transportation, labor, technology and more. It is prudent to carefully monitor the upward changes to your ‘cost of goods” and overhead, over the months ahead. Although HMI is doing all possible to provide its customers with the minimum impact from rising costs, the market and economics of everyone’s business will change in the near future
Raising prices is not fun and can be scary but the requirement is a fact of life. Some obvious things to consider:
It’s not just Poly – Market pricing for all building material products, to include concrete, are escalating quickly. You may find that the “value statement” you provide can be just as strong or even stronger when your service at a higher cost is compared to a replacement option.
You are not alone – The rising costs and shortages of polyurethane raw materials have no borders and no competitor is sheltered. To date the comfort of HMI’ prior purchasing policy and processes have you enjoying security of availability. Chances are your competitors who are not affiliated with HMI will not have this luxury. This may provide you with a competitive advantage during the cycle.
There is no correct strategy – Some of you may wish to hold prices and absorb a reduction in profit margin to gain market share. Others may put in a significant price increase, based on escalating costs to lever the market condition and increase profit margins substantially for a period. Yet another group may incrementally increase prices slowly in modest amount’s to test the elasticity of the market. These decisions are yours based on market, competition, strategic objective and more. However care and caution is offered when you allow for shrinkage in your profit margin. It simply is ill advised to work more to make less given the market wide cost pressure everyone will be feeling.
A reminder again, “you’re doing this to make money.” Do not fear testing the elasticity of the market. You can always bring prices back down after the test. Or you may wish you did it a month ago!
