By Joe Duszka, ISFA President
If you are like many fabricators today, you find yourself in a frenetic and challenging market, running at capacity and looking for any opportunity to catch your breath. At the same time, with material price increases, labor shortages and the staggering level of inflation, fabricators are seeing bottom lines getting squeezed while meeting production demands that should be padding bank accounts. In the current climate, it can be easy to focus on getting product out the door while losing track of what puts money in your pocket. One of my largest competitors recently shuttered for this very reason. In light of this, my team and I decided to revisit our approach to the current market to ensure that we make decisions that lead to increased profitability and not just increased volume. Here are a few points to consider when evaluating your profitability.
First, it’s critical to evaluate to whom you should be selling — and more importantly — whom you shouldn’t. With more work available to fabricators than they can fabricate, how do you know which to pursue and which to pass on? One tool we use in our business is a SWOT analysis*. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. When conducting a SWOT analysis, you identify internal strengths and weaknesses as well as external opportunities and threats your company faces in the market. The goal is to develop strategies that capitalize on your strengths and minimize or address your weaknesses. You want to put your company in a position to take advantage of the opportunities presented by the market while protecting your company from market threats. You can use what you learn from your SWOT to help you choose which customer segments may be a good fit and those that may not. For example, if one of your strengths is the ability to turn jobs profitably from template to install in five days or fewer, builders may be a good target customer. On the other hand, if you struggle to make money turning jobs in five days, builders might not be your best option.
Second, consider your profit margin for each market segment. Make a list of the ones you sell into (builder, kitchen and bath, retail, commercial, etc.) and note the profit margins in each one. When evaluating different business opportunities, consider what you learned in your SWOT analysis and pursue the segments that will capitalize on your strengths and maximize your profit. Stay away from those with a low return rate and those exploiting weaknesses. Regardless of how you decide which business to pursue, your decision must be deliberate, not simply because the work is available. As we all know, not all work is good work.
Third, it is likely that the largest line item on your profit and loss statement will be material cost. With price increases for materials coming in daily, it is critical to your profitability to pass the increases along to the end user. Many fabricators are reluctant to increase rates for fear of losing work to a competitor or because they do not have an evaluation process or implementation strategy. In today’s market, customers are more accommodating of price increases — it’s happening everywhere.
One of the keys to securing a price increase is to know why your customer buys from you — your value proposition. When implementing a price increase, think through the best way to do so for each customer type, and be sure to restate your value proposition in your presentation. Some customers will be as simple as changing your pricing calculators (retail customers), and some may require an in-person meeting (builders or kitchen and bath dealers). Regardless, remind your customer why they are buying from you and that the price increase is necessary to ensure the health of your business and therefore theirs. As an aside, we tend to think of price increases in terms of slabs and sheet goods. Be sure you factor in increases in labor costs and overhead items as well.
For additional ideas and strategies, I encourage you to leverage an ISFA membership and the events, programs, resources and opportunities the association provides to help you strengthen your business. From podcasts to workshops to Industry Roundtable events, ISFA is dedicated to supporting fabricators in their work. I look forward to networking with you at one of our upcoming events.
For more information on conducting a SWOT analysis, visit https://indeedhi.re/3NZ7xek.s.