Why Building a Backlog of Work Could Cost Some Contractors a Lot of Money
Builders, remodelers and lumber dealers often get in trouble with lumber framing packages by overlooking the obvious…the volatile lumber market. Most contractors and lumber dealers do not have the luxury of pricing a job today, signing it tomorrow and buying the required materials the next day. By the time a job is priced, signed and the lumber gets delivered to the jobsite 30, 60 or even 90 or more days may have passed and lumber prices may have changed as much as 20%. At the Estimating Workshops I did this concern comes up quite often and attendees often share how their profits are affected as a result.
An educated guess is much better than a Wild Ass Guess!
Matt Layman is the publisher of The Layman’s Lumber Guide. I met Matt through LinkedIn. His expertise is forecasting “when” lumber market pricing will change. Having and using the information he assembles through his research can help contractors and lumber dealers price future jobs involving framing materials with precision.
According to Matt lumber prices are reported twice weekly.
He says some weeks do not change at all. However he also points out that 70% of the time they do change by an average 2.5% each week or 10% per month. Based on those realities a contractor who estimates a framing package using today’s lumber costs at $10,000 may end actually paying over $13,000 for that same package 90 days later. For those of you who understand how margins and markups work, not only will the contractor have lost the $3300 due to price increases, but also the gross profit margin on that difference. At a 50% markup that’s another $1650 of gross profit that could have been included in the sell price to help cover overhead and profit.
If as a contractor you buy a lot of framing materials you may want to consider subscribing to Matt’s monthly publication called the Lumber Market Blueprint. I also think lumber dealers serving contractors could share this information with their customers on a regular basis. Doing so would be a great service that could help differentiate them in the marketplace.
The image above is an excerpt from the February issue of Matt’s Lumber Market Blueprint. Notice that the information not only includes his predictions for the next 30, 60 and 90 days, he also offers some insight as to why he makes his predictions. I suggest by knowing the why’s behind his predictions you can consider your own pricing adjustments if for any reason conditions change dramatically during the month.
I appreciate Matt allowing me to share this information with you.
If you are a contractor do any of your lumber dealers share this kind of info with you? If so, it would be great if you shared the name of the dealer with us as well as an example about how the information has helped you.