Industry News

3 Ways Contractors Can Deal with Rising Prices and Construction Costs

Kristen Frisa

High costs concern almost everyone, and contractors are no different. Everything from fuel, equipment, and materials costs are rising, and despite economic policies meant to curtail inflation, there's no immediate end in sight. Here we'll discuss some ways construction companies can maintain budgets and keep projects moving despite the high cost of doing business.

Why are costs so high?

So many factors within global and national economies can cause inflation and recession, so it's tough to point fingers at any one thing. Over the past couple of years, some significant changes have worked together to create the current situation.

When a global pandemic slowed economies, construction mainly kept chugging along. After a short blip in early 2020, strong demand for construction kept the industry working, but there were some complicating factors. First, materials supply chains slowed because manufacturers, trucking companies, and warehouses had to work around Covid restrictions. As materials became harder to get, prices increased by 20% between January 2021 and January 2022.

Second, the unpredictability of work, school, and our regularly scheduled lives over the past couple of years has exacerbated an already tight labor market in construction as workers look for jobs with more flexibility or remote options. As many as 35% of tradespeople working on residential construction job sites may be looking for another job. It is a seller's market for construction professionals, and that means higher wages (and higher costs for companies that employ them).

Add ongoing geopolitical uncertainty and political decisions meant to make national economies more self-sufficient, and you have a recipe for higher prices across the board.

How can contracting companies deal with increased prices?

Increased costs impact a contractor's ability to make money on each project, especially if costs rise during a project after a bid is accepted. Bidding higher is always an option, but bids must remain competitive for contractors to have continued success. 

So much of the project costs are out of your hands, but one thing you can control is your internal processes. A laser focus on making your team efficient and productive at each stage of business operations can improve your margins and keep your business running through tough times. 

Improve your communication and collaboration

Rework and costly errors in construction projects often stem from poor communication: workers misunderstand the next steps on a project, or a change order gets lost in the shuffle, for example. These missteps can be disastrous for a project's bottom line. Construction workers spend more than 14 hours each week dealing with conflict, rework, and other non-optimal activities, all of which amount to over $170 billion in labor costs in a single year. 

Increased collaboration can go beyond error prevention to better your business operations. Early and often discussions between stakeholders can identify potential pitfalls and improve project delivery. By getting everyone on the same page, you can save time, money, and frustration and widen your margins to make room for increased costs.

Get smart with discounts

When grocery money is tight, what do you do to trim the grocery bill? Smart shoppers focus on two main areas: get efficient with the goods they bring home, and look for coupons and discounts.

Using manufacturing principles to create some parts of your project can optimize your supplies and ultimately save you money on a build. Consider offsite building for some of your project's elements. Offsite building takes advantage of early design and careful planning to waste fewer raw materials. It also takes advantage of bulk buying, reduces labor needs, and delivers projects faster. Overall, offsite construction can deliver up to 20% savings on construction costs. 

The next step is to look for discounts. Although you can't control materials costs, you can work closely with your suppliers to cut costs wherever possible. For instance, can you score a discount if you pay your invoices sooner? A good supplier relationship built on trust (and quick payment!) can open doors to sweet deals, discounts, and get you first dibs on tough-to-get supplies that can move your project along faster. Companies that collaborate with suppliers grow faster, reduce costs, and realize more profits. 

Pay your suppliers faster to protect this relationship by setting up AP automation with MazumaGo. Using this tool, you can reduce the data entry and bottlenecks to bill payment to get invoices paid faster.

Reduce manual administrative labor

Your administrative staff has huge potential for driving new business and saving you hassles, but they can't do it if they spend all their time doing repetitive, manual tasks. 

Think about your accounts payable and receivables processes. Does your staff open email inboxes and manually input data from digital invoices into your payables software, and then again into your accounting software? 

Data entry and reentry take hours of work every week, and could result in double entries and costly errors. Get efficient by automating these processes wherever possible. With MazumaGo, your team can categorize and assign bills to projects, then sync them with accounting software, so everything is processed automatically. Request approvals for payments digitally, and the system will send payment and mark the invoice 'paid.' 

By reducing the time and effort put into typing numbers into boxes, you free up your staff to do work that can benefit your business, all while ensuring suppliers get paid quickly and accurately. 

Look for opportunities to improve

There's little you can do about the external factors that impact your construction business, like material prices, competition within the construction industry, or a shortage of skilled workers to fill positions. However, turning to your internal processes can go a long way to buffer your operations against those struggles.

These are challenging times for businesses, but the demand for construction remains strong. You can build a stronger business from the ground up by setting up your company to be more productive and efficient with raw materials, labor, and time. Save yourself the time and entry of AP manual entry – get started with MazumaGo today!