Price increases are bad enough when we know they’re coming. It’s much worse when the increases are unexpected. Unfortunately, given the realities of the supply chain, compounded with labor issues, pricing is far from stable. This month’s Real Issues. Real Answers. question asks how your company is navigating unexpected price increases.
We asked our loyal readers who have opted in to receive our monthly Real Issues survey in their email inbox to weigh in. The first thing we asked is if our readers are currently satisfied with the level of communication from their vendors about supply issues and upcoming price increases. Well, vendors, as they say…you win some and you lose some. In this case, you’ve won exactly half. An even 50/50 split of respondents checked each box for that question, meaning half are satisfied and half are what savvy sales reps may call “opportunities for improvement.”
Next, we asked survey respondents to weigh in on the question we received from our reader, which was:
“Our latest challenge is the constant change of prices from vendors, many without notification. Worst of all are the large increases—at times over 30%. I understand the supply chain and labor issues that are pushing prices up, but that doesn’t make it any easier to manage the uncertainty of when and how much our costs will rise. We’d love to hear how other companies are dealing with this issue.”
Responses from lumberyards, building materials dealers, and specialty dealers/distributors:
“We have no choice but to pass the price increases on to the consumer. We do feel like the most recent price increases were not necessary as the manufacturers are catching up due to fewer orders, and the recent price increase was only to generate more orders in advance of the increase. Also, not all of the overhead door manufacturers had an increase as normally all of them do an increase at the same time.”
“The moral of the story is to be diversified with the people you buy from! Do not have all your eggs in one basket. When the supply side gets tight, vendors will cover their biggest customers first.”
“We are constantly asking about increases and for the most part, we get a pretty good heads-up. I agree that the Monday morning notification that prices went up on Friday prior is very frustrating. We have been trying to anticipate them on common items and buying 3-6 months’ worth to cover our customers as well as take advantage of any upticks in the market.”
“We will only hold pricing for five days.”
“Have not been quoting items that are hard to get. We tell customers what the price was when we last purchased the product and explain that cost will change, but we’re not sure how much. Most have been understanding.”
“We stay in constant communication with our vendors and our purchasing department. We try to understand the reason behind the increases to explain to our customers.”
“You need to be very consistent and constantly communicating with your customers, i.e. contractors with large on- going jobs, remodelers to estimate jobs, and homeowners to plan accordingly. This needs to be done through the appropriate salesperson. Only certain information should be released. More specific information can be shared internally but with strong confidentiality language. Constant updates allow the customer—regardless of type—to plan better, which will foster stronger relationships.”
“We are in contact with our suppliers daily and are changing our prices on a weekly basis. We maintain our margins and share the current prices with our customers via our outside and inside sales reps. Our bids are an estimate of products needed to build the house, etc. with current prices—not an actual framing list. We print on our estimates that prices are valid for seven business days. Once a builder starts a project, we hold pricing until the framing is complete with in 90 days.”
“Communicate with our customers and salespeople as often as possible so they are not surprised.”
“Stay in constant communication with your customers AND your employees. Let them know what is happening. I try to gauge upcoming projects as well and encourage purchasing material sooner rather than later. Ask for a deposit on the material to help with a potential increase in your inventory until the job ships. This has worked out very well for us and protected our customers from some of the increases that get sprung on us.”
“We are looking at pricing weekly, and some items daily, to keep up with the increased costs to make sure our current retail is at least covering tomorrow’s cost. It has been very difficult to keep up with, but we have schedules with different products to look at and see where the market is so that we don’t lose profits on the next purchase. Also, we are trying to keep up with market swings to try and buy when our guys are telling us it’s time to buy. We have been fortunate with good information from vendors and our own strategies to buy at the correct times. Taking time to study all aspects of the product is the key to making the best decision in this crazy market.”
“We strive to let our sales team know as much market info as possible in the simplest terms, then we ask them to quote defensively on special items that we don’t have in stock. Quotes are only valid for seven days and then we re-price them. It’s the same thing for customers. We give them the info and try to educate them about these challenges that are bigger than we can control.”
“We are taking payment up front on large construction projects — mostly for lumber packages. This protects the pricing and speeds up your cash flow. The big problem is engineered lumber and millwork. We are going to try to put more dollars into the truss and floor packages.”
“We express our displeasure, however there are few options available to us. Our goal is to always be a good partner, but that has to be mutual during the good and the bad times.”
“Our response to the current market has been holding all estimates for seven days only. We pass on all cost increases as they occur.”
“We have been getting unexpected price increases, but our vendors at least do their best to give us a heads-up, even if it’s with an email days before the increase. I understand the reason for some of the price increases and some, maybe all, are justified. But it sure seems like most manufacturers are bumping prices because they can. The argument will always be that they are not, but we know better. This false inflation and pumping prices just for another buck is creating an unsustainable bubble.”
“When we do quotes, we use all current pricing, but we also let our customers know that the prices could increase at any time, but we will let them know of significant changes.”
“I am not having this issue. It really depends on your vendor reps. We are getting emails from most of our reps plenty in advance of the increases. There have been a few times where we received an email stating ‘effective immediately’ though, and we just have to let out a few expletives and keep going. Unfortunately, it is what it is.”
“Very simply, we go up when we are notified of a price increase. The same for when the market goes down, we go down.”
“Prices are good for seven days. If the customer wants to guarantee the price, they should buy the product now. Trust me…if you buy products to cover your customer, pricing will drop and then the customer will look for cheaper prices.”
“For the most part, I am absorbing the cost even if I lose money.”
“Vendors do give notice regarding price increases. We may not like the frequency of the increases, time frame before increase takes effect, or the percentage of the increase, but we do get notified. If you are talking about commodities, they have been volatile for decades and dealers have always struggled with average cost versus replacement cost as well as price at time of shipment business models. I have never not received a price increase announcement from our key vendors, most generally in the form of an email. The real challenge these days is managing the time frame of quote to order on products that in the past did not experience the frequency of increases that we have experienced this past year. Once you are notified of a price increase, you have to review with your staff all open quotes for these products and update customers accordingly. I don’t think it requires putting the kind of expiration date on quotes that straight up commodities require, but it does demand a thoughtful approach to the process.”
“We have been very proactive in telling our customers that price changes are coming to us with no notice and that we have to pass them on.”
“Using a diverse supply chain has helped. We source from several suppliers for nearly all our products. That also means that we don’t always get the lowest price or most advantageous terms, but we do maintain a consistent business relationship with all our suppliers. It helps keep everyone honest. We also pay within terms so they like our business.”
“I am trying to treat my customers with the fairest (to them and to us) compromise that I can on things that have been quoted already. I am only holding quotes for one week and anything that has been rapidly escalating (like steel) comes with a warning that they really need to decide today if possible, so that we can get the order placed immediately. Otherwise, the price may go up, but worse, the product may no longer be available.”
“We are now educators, more each day, to our customers regarding price increases. We proactively communicate any possible increases and act as the ‘buffer’ to the sticker shock when those increases are realized.”
“Maybe you should consider a different buying co-op that keeps you better updated on price increases. We were doing just-in-time deliveries for our in-store items, but have changed to buying what we can when the products are available due to supply and price increase issues. For the last four weeks we have 1,600 hardware items that have had price increases. Happily, we only have to change the bin tickets now and not re-sticker every item with the new price. The best part of all of this is that price has been removed from the decision-making process on a lot of things, so no matter what the price, products are still going to sell.”
“I purchase what I think we need at the first of the month. If we sell out of a particular item, I immediately put the new cost of that item in the computer and change my sell price right then and there. Also, we don’t quote anything longer than two weeks at this time.”
“I have seen nothing even close to that increase amount. We have a policy that requires all suppliers to inform us in writing of any increases no less than 30 days out. This allows us to shop the product around if needed, shop the competition, and execute retail changes in our multiple locations prior to taking the increase. We also push back a lot to stop or reduce the increases. Our volume helps with that.”
“Vendors are doing what they have to do, and customers keep buying. It’s frustrating, it’s a hassle, but it could be much worse.”
“We are doing our best to stay afloat and stay on top of retail prices when we are presented with increases. We also try to stay up with local competition, otherwise before we know it, a customer will come and wipe us out on something because we haven’t raised the price in time, or we are the only ones with the product. It has been a difficult, trying last two years, and I expect 2022 and beyond to continue to get worse.”
“Unfortunately, this is reality right now in the marketplace. We push back with vendors when we can and have to pass the higher costs onto our customers. One of our largest customers said vendors lost all credibility and any good will or relationships.”
“We’re just reacting as quickly as possible, but sadly, following the market and not being proactive.”
“Unfortunately, you need to pass price increases along to the end consumer. We are telling all customers that the original estimate is good for 30 days. Anything that is a special order that is not selected and ordered at that time is subject to change.”
“All you can do is increase your prices when they increase theirs. It’s not a popular decision, but a necessary evil.”
“After 40-plus years in this industry, I have never seen the increases this bad. I get on all my vendors, hard, for notification. Vendors know about these increases and seem reluctant to pass that info on. Like all people in sales, they hate to ask for more. I’m now asking them weekly about increases. With all the communication technology we have, they have no excuse. Just keep pushing them and get your prices adjusted. Good luck!”
“We require written notice (30 days) and a copy of the notice that we can pass along to our clients assuring them of all the issues coming up and that we need to respond accordingly, so they understand.”
“Our advice would be to stay as lean as possible. It is better to have something to offer, even at an outrageous price, rather than be completely out of stock and a competitor seizing the opportunity to gain market share.”
“Go with the flow because it’s out of our control. We let customers know we will price the item when we know the cost, and we will add no higher than our standard margin. We’ll show the customer our cost if so required. If that’s not enough, we’ll tell the customer to buy elsewhere because we don’t want to disappoint them or give them unexpected bad news.”
Responses from wholesale distributors, manufacturers, and service providers
“Sometimes you have no control; you have to pay if you need the product.”
“Establish who your most trusted vendors are and ask them to give you periodic updates on items most crucial to your business.”
“Fortunately (or unfortunately) we are in a strange time as ‘demand’ is at an all-time high. Between COVID-19, supply issues, and the extreme weather we dealt with last winter, we are in the midst of a perfect storm where we as a dealer/ distributor make little, if any, impact. The newest prices are passed down from beginning to end. Our only hope is that freight prices will begin to decrease.”
“In most cases we are having to eat the increase due to our long order file.”
“From a dealer perspective, communicating with regular trade customers the nature of price/time of shipment should be an expectation moving forward. Also ensuring the trades are getting current pricing expectations rather than quoting from the hip or historical is a potential thoughtful way to help manage.”
“For the big vendors, suggest a monthly or quarterly 12-minute Zoom or phone call. During the call, let them know you’re working on your upcoming budget. Ask them if any price increases are pending in the next 30 to 90 days. If so, how much? Try to negotiate a gradual increase as opposed to an immediate 30% jump. Remember, negotiations take time. Keep emotion out of the conversation.”
“This is a tough one! We try to ‘listen’ to the non-verbal cues as well as the verbal to try and prepare with inventory so that we can meet our obligations.”
“Dealers have to move to PTS (Price at Time of Shipment) quotes for builders. The quotes should be good for 24 hours.”
“Unfortunately, most are passing the increases along as they receive them. As a family-owned business that is sensitive to the difficulties of price increasing and market competition of our distributors and dealers, we are doing the best we can to evaluate our product offerings, manufacturing processes, equipment, labor, etc. to find other ways to offset the increases we receive as best we can, so that we can minimize the size and frequency of increases.”
“These are tough, inflationary times. These issues and increases are happening up and down the supply chain. The reasons manufacturers are pushing along increases immediately is because they, too, are incurring the costs immediately from their manufacturers and vendors. We do not expect, nor ask, our customer to absorb them either and recommend that they should be passing them on immediately, as well.”
“Put some skin in the game. If we agree we could see a 20% increase before overhead and profit is tacked on, and it comes back at 30% at delivery, you eat 5%, I eat 5% and together we figure out what a fair overhead and profit markup is that gets carried to the client. Better yet, bring the client to the game up front and explain how the shell game works.”
“You need to be straight with your customers. You need to communicate often.”
“We have been mostly fortunate in this area, as we have received ample notice of increases. Way too often, we may all agree, but most are understandable. These constant changes put a high amount of stress on us to maintain our online pricing structure and costs to our dealer base.”
“Focus on your core business. We all know how volatile our industry can be. Your customers are more important right now than the markets. Take care of them first.”
“Be a good communicator even when others are not. Talk about estimated timeframes not exact timeframes.”
“Proactively visit with vendors weekly: 1) get info from them, 2) state your expectations, 3) ask what you can do to keep prices down and limit supply chain Be a good customer to the vendor: 1) don’t constantly beat them up over price, 2) communicate with them, 3) pay bills on time and take discounts if offered.”
“Commit now with vendors on part of next year’s needs. Lock in a price. Suppliers have product at an old price, in theory, so take advantage before it goes up further. We have spring bookings for that fact. Inflation may cause a slowdown, but no one can predict the future. People still will upgrade their homes given the current real estate market.”
“We always issue Purchase Orders based upon Requests for Quotes (RFQ). The time between our RFQ and PO issuance is usually a couple of days, so we don’t usually see quotes being countered. However, if a supplier counters us, we either eat the price increase or go back to our customer for the extra. Or we source another supplier with lower pricing. Otherwise, we expect (and ask for written confirmation of the PO/pricing from our supplier) which usually shuts the door on any further price/delivery discussions. As a wholesaler supplier, we are not quoting any jobs for pricing out more than three weeks, unless our supplier can guarantee that pricing for the period in question.”
“At this point in time large increases with no notice appears to be the norm. Inventory is key here… if you have some, you can manage the timing of passing along the price increase to your customers. If no inventory, then the supply chain is immediately hit all the way to the customer. This is not sustainable and will ultimately damage an excellent customer service approach.”
“Date quotes to expire sooner. Devote resources to staying in contact with suppliers continually.”
“This has unfortunately become the new way of doing business. Things that would have hurt your feelings a couple years ago are standard operating procedure today. Offering open, honest communication is all you can do. Understand what you can control and do your best with that.”
“These are certainly unprecedented times in our building products supply chain. I would advise any dealer to over-communicate with their customers regarding supply timeframes and pricing issues. Counsel your customers on the necessity to communicate pricing changes when quoting jobs in the field. These price increases are well past being absorbed within the supply chain concerning end user prices. Everyone needs to understand the volatility in pricing and if they aren’t willing to pay extra, don’t take the job.”
“Maintain inventory levels that allow you to average up the cost basis.”
“We expect vendors to honor the price of material when an order is placed and notify us as soon as any increases are coming. All vendors are increasing prices right now because they can. I’m not sure that they are all warranted.”
“Task someone with contacting key vendors weekly, if needed, to keep abreast of the changing dynamics that could impact your bottom-line so that you can share with your customers in real time. Your vendor’s mistake doesn’t have to become your mistake.”
“We give our customers a 30-day notice in advance of a price increase. Some larger distributors require a 60-day notice. Our typical price increases have been in the 3-7% range, depending on the exact product.”
Hundreds of readers share their insights for this every-issue feature. Have a Real Issue? Contact Rick@LBMJournal.com.
