There is no question that inflation is taking a bigger and bigger bite out of everyone’s budget. I’m old enough to remember joining the workforce during the hyperinflation of the 1970’s. I remember shopping for my first house when mortgage rates were 13% (and I felt fortunate to get one at 9.5%!). But my children grew up, went to college and started their careers during a time of little or no inflation. Sure, the price of gas had its ups and downs, but overall the costs for most goods and services varied very little year to year from 1990 to 2020. Well, those days are gone.
I’m not the Fed, but I don’t see average inflation back in the 2% or lower range anytime soon. And if you are in the restoration industry you know that inflation and employment pressures are squeezing your margins.
We’ll discuss the jobs situation in another column. Here we are going to address your costs and what it takes to balance them more in your favor.
First – and most importantly – you need to understand what your costs truly are. That new technician you just hired at an unheard of rate of $25 an hour – well, he/she is really costing you a lot more. Probably triple that once you factor in your actualized and non-actualized costs. That new salesperson you brought on board earning a hefty commission on new business is certainly bringing in the business. But those jobs are lucky to net you 5-10% and that’s not going to cut it with inflation pressures of 6% or worse.
So, you need to know what your true labor costs are. How much productivity is going to cover management, fixed (and not so fixed) expenses, estimate preparation time, insurance and benefits (to name a few)? Has your rent or mortgage gone up? You bet. How about your vehicle expenses? Trying to get more out of your fleet makes sense with the costs of new and used vehicles going through the roof; but have you taken a good look at your maintenance and downtime?
How old is your equipment? How much warehouse space are you really using? I could go on and on.
The bottom line is that for your restoration business to make real money you need to treat it as a real business and that starts with knowing where your hard earned money is going. Especially if your costs are increasing at 5-6% per year and the adjusters are nickel and diming you to death.
At Restoration CrossCheck we can help you map out your financials and assist you in developing a plan that will hit your target growth rates – regardless of tomorrow’s inflation rate.