August 17, 2010

14%–Are You Kidding Me?

By Paul Bieber

Yep, 14% on clear glass and 8% on just about everything else. Now, raise your hand if you think that this price increase will stick. My special ‘blogovision’ computer let’s me see how many have raised their hands, and it looks like most of my readers.

For the last generation we have all complained that prices in the industry are so low that no one is making real money. Whose fault is that? To paraphrase Pogo, “I have met the enemy and it is us.” We are all guilty; we buy on price more than quality and service. So, what’s a boy to do? I think this price increase will help, not hurt our industry. Most glass fabricators and shops raise their prices only when the floaters do. But the electricity goes up, wages are slightly up, and insurance is through the roof. I am not condoning or encouraging price collusion, but I sure do hope that most people do raise their prices as well. With better operating margins, you can offer the best service, you can stand behind your promise of top-notch quality.

During this pricing transition you can adopt a few of the following strategies to help you through this increase.

  • Call all of the customers with pending quotes and advise them of a price increase coming in a couple of weeks. Tell them that if they give you a letter of intent now, with a firm schedule, you will honor their old numbers. This will get some people to commit an order to you now.
  • Contact your fabricators and distributors and find our their policy about jobs in progress. A progressive fabricator should honor jobs for three months at the current prices provided you give them a letter of intent. If the job is large enough, the floaters will generally give the fabricators this lock-in and your fabricator should pass it on to you.
  • If you have storage space and funds, fill your racks as full as you can. And, then sell at the new pricing. That is a 14% return on your money. I would do that every day.
  • Don’t sell your current stock at the old prices unless you have a firm purchase order. Many glass shop owners feel that the price increase should be passed through after they receive new stock. Don’t wait. Raise your prices now.
  • When you raise your prices, take the time to make them logical and profitable to you. It is easy to just change every price across the board. But if you find yourself selling something for $11.02, it sounds better to your customer at $10.99. Now, you think this only works at Wal-Mart, but believe me, it works everywhere, in any financial transaction.
  • Most vendors will give you a buy-in for a limited amount of time, usually between thirty and ninety days. But, you have to ask for and earn this kind of treatment. Do you pay your bills on time? Do you create tons of charge backs? Do you treat your vendor like a partner? If you do, a good vendor will return that in spades, and during pricing upticks, it is your time to insist on special treatment
  • If you are in the middle of an ongoing job, you may have to purchase the balance of your needed stock to hold to your contracted price. Discuss this with your fabricator, and ask for 90 or 120 day terms on these purchases. If you have a good credit history, your fabricator should work this out for you.

What do you do with the one-year contract you just signed to do ongoing work at the local apartment complex? If you wrote the contract without an escalator clause, you can only beg for an increase in pricing.

I recommend that you include an escalator in year-long maintenance type contracts, based on a market basket of three vendors that you use. You agree to show your customer the price increase letters you receive and agree to raise your prices by the average of the three. The customer has the right to cancel the contract, but you do not. If you can put this clause in your contracts, it is worth it to give a point or two as a discount for the clause. Make that extra point a larger discount if they pay within your terms!

This price increase should stick. We need it to improve the general health of our industry. I hope it works.