Real Issues. Real Answers. How to handle the quoting process

With a potential end of the pandemic in sight and a continued sunny forecast on the horizon for the housing and remodeling industries, it may seem as though there is little to worry about for the independent LBM dealer. That might be true if it wasn’t for the materials shortages brought on by the pandemic, and the unstable pricing that has followed. While no dealer is immune to these challenges, some may be handling them better than others, which led an Iowa dealer to seek the counsel of fellow lumberyard operators by asking this month’s Real Issues. Real Answers. question… How to handle the quoting process.

Thank you to the nearly 300 readers who took part in the survey, the majority of whom shared recommendations and insight from their own business by responding to our request for advice.

How would you respond to the dealer who shared this question?

“The volatility we saw with both pricing and supply of many building materials last year is carrying over into 2021. With extreme price spikes in commodity products, and ongoing product shortages, how are other dealers handling the quoting process on potential new projects with their contractor customers?”

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Responses from full-line lumberyards and specialty dealers

“They’re not. Pricing that is quoted is now only good through the end of the phone call. When you call back to place the order later that same day, it’s either no longer available, or the price has gone up. Orders that have been placed and are supposed to be arriving any day now are either pushed back six to eight weeks, or canceled and rerouted to areas where people will pay higher prices. This is ridiculous.”

“We review prices every 30 days and certain items weekly. Hold prices for 30 days.”

“We give them the quote and tell them it could change daily. If they want, we will lock them in and bill for the materials, so they—and we—are covered.”

“Use contracts and keep enough stock to supply your customers. Do not try to hit home runs during this market.”

“We are currently only holding quoted prices for ten days. However, when prices were bouncing off the walls, we would only quote for the day you were willing to place the order.”

“We continue to quote based off of market cost weekly, and we hold quotes for 14 days. Any quote sold after the 14-day guarantee is reprised at current market pricing, with a maximum ship time of 45 days.”

“Let them know that the quote is good for only 10 days and then project a percentage increase for them covering the next 30 days. Make sure that the projection is uniform in percentage each week and then let them know that any decrease in wholesale costs will be passed on to them also. And in addition, show them an ‘escalator clause’ that they could use in their contract negotiations with the client. Something that says that the volatile pricing of commodity materials must be addressed or paid for by the client if there are any delays or extensions of the contract during its duration.”

“We can’t make a quote for something that won’t take place for months. It’s like a long-range weather forecast and you can’t guarantee the accuracy. In the short term (one week), we seem to be ok.”

“1. Quote out 10 days or less. 2. Quote only what you own at those numbers 3. Quote further out only with an accelerator tied to Random Lengths. 4. Freely share graphs of the market. 5. Freely share the futures. All of this will cover your own bases, and let your customer know you care.”

“We have to institute the price increases in order to continue a somewhat profitable business.”

“You should be very vocal with your contractors and if possible, with the homeowner. Let them know this is more of an estimate than a quote because you may have provided pricing on materials you do not have in stock and its possible won’t know exact pricing until it is shipped.”

“Price good for 30 days.”

“I would suggest holding prices for no longer than five business days. In extreme cases we price at time of shipment!”

“We tell them that the quote price and availability is only good for that day. Price is subject to change at any time and if you don’t get it now, we may not be able to get it. Many customers are choosing to go ahead and purchase packages well prior to the actual job start. They need to pass that same info on to their customers. Constant communication is key, between our people and the contractor, and between contractor and their customer.”

“Seven-day price quotes.”

“Be honest. Communicate, communicate, communicate.”

“Quotes only valid for short periods of time, and constant communication.”

“For a regular, long-time customer I’m advising to do cost-plus (instead of a set price) on contract projects. On spec homes, we wait until project is complete before announcing the sell price. You’re going to sell it the next day, anyway. For new potential customers, we price at regular price, explaining to them that once they set-up an account with us and commit to purchasing their projects from us, we will give them our special contractor pricing. They either trust us or they don’t. We won’t low-ball to get a new customer. It isn’t fair to our long-time regular customers. We have been in business for 65 years and still going strong.”

“After the steady rise that we saw in pricing in 2018 and our slow reaction to those changes, we put in a plan for the next time is happened. We no longer try to out-guess the market. Our pricing is updated weekly with the market indices. On most of our monthly bids we have put in a two-week trailing average model to smooth out any sudden changes. We have agreements with most of our large builders to follow this average. It smooths out the peaks and valleys for both parties. We no longer do any bids over 30 days.”

“I write on my estimates that prices are good for 10 days only. Prices may go up or down and all materials are subject to availability.”

“We are allowing our sales team to honor the quote for seven days, or the customer can pay in full, and we’ll deliver when they want the material.”

“We’re not issuing quotes…only estimates with no assurance that they will be accurate beyond the date they’re issued. The only way to lock in a price is to buy the material now. We will strive to find the material at the best price, and we will negotiate with our customers to provide storage for a reasonable length of time.”

“Be upfront at the start, get what you have to for material, given that it is going to be an expensive and time-consuming process. Nothing is easy today.”

“For the most part, distribution should be communicating to you pricing terms based on their availability. If not, listen to your gut and mill suppliers and also pay attention to print and info provided. Ask for a potential start date that will impact pricing or quoting to you (futures).”

“Very short lifespan for estimates (prices good for 14 days), and try to follow market pricing except where you’re confident you will have stock to cover the estimated materials, then find a comfortable middle ground between market price and actual cost. As far as shortages, make sure they understand they’d better order the materials with as much lead time as possible.”

“We are currently doing estimates that are good for seven days. If the down payment is not received within the seven days, we are updating pricing. We are pulling the material once the down payment is received and covering it and putting it aside so that we know the product will be available when needed. As far as the special orders, we are trying to work with vendors to hold pricing. If they do not hold the pricing, we are asking customers to pay for it all in advance and placing the order.”

“We are quoting for one week. We keep up on where the prices are going and advise contractors to purchase now and lock in or wait it out.”

“We quote 30 days, but we reduced that to 14 days for short periods.”

“All quotes now have an escalation note. We hold pricing for 30 days when it is reasonable to do so. We also talk with our contractors about including escalation clauses in their quotes to the customer.”

“Quotes are only good for two weeks.” “We are doing 10-day quotes. No exceptions.”

“The best advice is to be up-front with your contractor customers about the volatility and to only hold prices for seven days, no exceptions. Also, it’s best to encourage your contractor customers to build some clauses into their contracts about commodity price volatility and be transparent with their homeowner customers about the market conditions as well as the delays that will likely ensue once the project starts due to supply chain issues. People have to understand that the pandemic is still here. The virus is still among us and causing sickness and/or quarantines that impact workforce headcount which consequently causes delays from the manufacturer and the distributor and the dealer, as well as the transport between each one of those links in the chain. I think we are all hoping this doesn’t have to be talked about after the 2nd quarter of the year.”

“We price at the time of shipment.”

“We are basically pricing at time of shipment. We will hold a quote for 14 days if the customer commits and arranges for immediate delivery. For larger projects we offer the option to pay for the materials so that we can invoice immediately. We will then stage the orders and ship to the customer as they request. We will try to be flexible depending on how good the customer has been.”

“I am in a weird position. I just finished my second-year anniversary. I’ve got a few clients where the trust has been built to know that I’m not gouging them and giving them the same markup as they’ve always had. The majority of my consistent clients, which is about six or seven contractors, are fairly new and we haven’t built the trust so I’ve had to lower my margins quite a bit to show them that they can trust me.”

“Quoting current prices and informing customers that pricing is moving. Quotes are good for one week only.”

“We have doubled our margins on quotes to cover unforeseen price increases.”

“Suppliers must be adamant that pricing is only good for 30 days, or whatever you feel is sufficient. Communication with customers is the biggest key…you need to let them know about every increase that you get.”

“First of all, they (the builders) need to be made aware of the current volatility with regards to price and availability. I believe most builders are already aware; at this point they’ve been living through it for almost a year, it shouldn’t come as a surprise. When quoting, it’s essential to know when materials will be needed and the anticipated duration of the project from beginning to end. Depending on the answers to those questions and your inventory position, you’ll be able to make a determination and a communication to set the bar for holding prices with the customers.”

“Be honest with them from the start. Most people realize that the lumber market is not very stable right now and they will understand. We used to mark estimates ‘Prices good for 90 days,’ but now we put ‘Prices good for seven days’ on our quotes. We are a small enough lumberyard that we don’t have truckloads of inventory on hand at any time so if we sell a big project, we will most likely be paying the current market pricing for the materials, so it does become a challenge. We find that honesty is the best way to run our business and it keeps us from getting into a situation that could make a customer unhappy.”

“If the customer is a consistent buyer who appreciates our extraordinary service, we give a 30-day lock with consideration of normal overruns, if we ship the foundation inside 30 days.”

“Increase inventory levels. Advise customers that prices are good for seven days.”

“Our quotes are only good for the material we have on hand. We cannot guarantee pricing further than that. We have a few customers who have significant projects who are buying but not taking delivery.”

“Pretty much the same thinking process as we do in other times. We always sell on current market, never average cost. On individual products that are in short supply in our market or generally difficult to source, we do our best to capture extra value in the price. If it is a product that fits the short supply and difficult to source criteria and we happen to have plenty on hand, we get even more diligent about capturing extra value.”

“Quotes are not good for more than a week, products not currently in stock will not be quoted because of pricing volatility, and any supply scheduled to come in is not guaranteed to come in on time. It sucks, but a firm line has to be held, because we are finding that a lot of people still don’t understand why there are any supply issues at all.”

“We put caveats on all quotes: 1. Prices subject to change without notice. 2. Subject to availability/on hand materials. 3. Orders must be shipped within 10 days or sooner. We have stopped billing in advance and holding orders as they were causing issues in our limited yard space.”

“Hold quotes for short periods of time—two weeks max. Update quotes regularly and keep your good customers up to date with price changes regularly. As soon as you get the go-ahead, order the job products or write-up orders to commit your inventory. If a job is out in the future tell your customer that to secure product at the quoted price, they may have to pay for the product ahead of delivery. Be positive and honest and treat the guys who built your business fairly! Remember, if you don’t make money you will be no help to them in the future.”

“The decline in sales in April-July due to the COVID coupled with the sudden start-up of sales in August caught producing mills off guard, causing sudden longer than normal lead-times. Our long-term relationships with producing mills have kept us with product to sell. However, the continued price increases from week- to-week have, and will, continue to be a challenge during 2021. Simply continuing to buy and cost-averaging has eased some of the pain for our customers. We will no doubt see alternative products surface during the year. Lack of truck availability will continue to be a challenge all during 2021 due to the shortage of drivers. Continual communication with our customers has been vital, and has created a sense of ‘we are in this together’ partnership. A give-and-take relationship has eased some of the pain with customers and will pay off in future business.”

“We are pricing the same way that our commodity suppliers’ price ‘sub prior.’ Contractors have to understand the volatility of commodity pricing. If prices come down prior to shipping, we are happy to adjust downward as well. It is the only way you can protect yourself.”

“We are feeling the pain of this question too. We are working very close with our builders. We give builders an estimate that is good for 30 days. After the 30 days is up if he wants to move forward with the job, we reprice it to current pricing at the time the homeowner is ready to go to the bank. At this point we also go out and secure the lumber for the job. It has worked so far—every customer has gotten through the bank.”

“We have a 14-day quote price protect, and after that we require a re-quote. All of our quotes are based off replacement cost at the time of quote.”

Responses from wholesale distributors and manufacturers

“Great question. It depends on the customer and our current stock. In order to be able to honor some quotes for existing customers, we have had to turn away potential new customers. It has been a very difficult line to walk.”

“Buy for ordered material. Holding inventory could see additional short- term profits, with much higher risks. The industry has become accustomed to shipping on schedule, reducing over- valued inventory that is slow moving. Learn from Amazon!”

“It is unfortunate that we are all experiencing this volatility. Regarding pricing, we recommend you pass it on to your customers. They too are experiencing the same price pressures in their everyday purchases in home essentials. Other dealers are passing the price on as well, so you will not be alone. It’s the law of supply and demand. Regarding product shortages, know your top movers and try your best to carry extra stock of those heavy moving items. Network within your active distributors. Search out other premium brands that may have healthy inventories.”

“Quotes are done with a five-day limit on pricing. Extended-out projects are told that the current pricing is for their budgeting purposes but are only good for the day of the bid.”

“Bid higher than needed. You can always give back a rebate after.”

“As a wholesale lumber supplier to dealers, we would advise quoting short term only—maybe for the week. If the dealer gets the order, he can lock in the price by purchasing enough to cover that job. We are also selling lumber a month or two out at PTS (price time of shipment) based on Random Lengths price the week the rail car ships. This is fair. If the market goes up at least the dealer gets the stock. If the market goes down, he benefits from the lower price at that time.”

“To a high degree, the confidence that product will be readily available at a local wholesale distribution warehouse shouldn’t be assumed. As a manufacturer, the most difficult situation to deal with is when a downstream builder’s project is delayed because of a lack of product availability. At that point, there isn’t a whole lot we can do to help. My advice would be to increase inventory levels to a point where when you get to a certain threshold you reach out to the manufacturer or wholesaler to determine the lead time. At that point your situation isn’t dire, and then your sales team can provide a realistic timeframe BEFORE the job is stuck.”

“Quote what you can today, since none of us can predict the future. As for the supply, everyone is doing the best they can, the demand is just greater than the supply. Expect longer lead times and try to plan accordingly.”

“Shorten the time the quote is valid. Put in a disclaimer that future material increases may increase the price of the building on the order/contract.”

“Guarantee pricing for 30 days and commit to carry enough product at those prices to cover those quotes. If possible, try to guarantee an agreed upon ‘cap increase’ for example, 10%. Contractors and builders are purchasing from whichever supplier can deliver product within their timeframe.”

“Better plan ahead and be prepared for extended lead times on many building products.”

“Quote only what you know you can cover and supply. Buy when stock is offered to you, and do not hesitate. Stay in the market as much as possible to average the costs out rather than dealing with massive swings.”

“As a manufacturer we have asked our customers to pass the word along to plan far ahead and have a contract signed to lock in their customer. Communication is the biggest factor we have to use with this type of supply and demand.”

“We’re slicing our profit margins to protect our customers from ‘sticker shock,’ and explaining that as such, to keep them from shopping unnecessarily. We hope to make up for some of this ‘slicing’ when supply comes more into line with demand, and pricing slumps from current levels.”

“We have made all of our customers aware of the price spikes and shortages and strongly urge them to pass the information on to builders. The real issue is making everyone aware of the shortages as well as price at time of shipment. We’re not seeing any relief in the near future; it’s going to be a year of change for everyone. Like I tell my salespeople ‘sell what we have.’ That’s the only sure way to keep out of trouble.”

“Get out of your long-held comfort zones and look for to other brands/ suppliers.”

“Price at time of shipment.”

“Stay in the manufacturer’s order file. Many manufacturers have customers on allocation. Don’t be left with an empty cart. Question the true reason that your new customer is suddenly your new best friend and decide if your low margin customers are worth it. The market will remain volatile —when one region backs off of ordering (i.e. due to weather), the other regions are plenty willing to pick it up. Basically, from a sales price standpoint, manufacturers have every incentive to produce more, but aren’t, because they cannot. Some aspect is limiting their production, which could be raw materials and/or labor constraints.”

 

Hundreds of readers share their insights for this every-issue feature. Have a Real Issue? Contact Rick@LBMJournal.com.

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