General Business Tips
A Current Snapshot of the Sweeper Brooms and Brushes Industryby Ranger Kidwell-Ross, editor, WorldSweeper.com
As I write this article, in October of 2005, the fast-paced increase in fuel prices is currently one of the biggest buzzes in sweeping. What is being considered less often is the effect rising petroleum costs have on other items used in the business. Some of the biggest consumables on sweepers are brooms and brushes, and what you may not have realized is how directly the cost of these is based upon petroleum prices, due to raw material, manufacturing and shipping cost increases. Here is a look at what's happening in that area of our business that includes comments by two industry leaders in that field, Jack Moran, Product Manager for Keystone Plastics, and Bruce Davis, Sales and Marketing Manager for United Rotary Brushes.
The cost of shipping and manufacturing has increased dramatically in the past months due to fuel increases. Now, with Hurricanes Katrina and Rita has come even more uncertainty along with a new round of price hikes. There is even a possibility we will see sporadic product shortages, especially for poly brushes, due to non-availability of raw materials.
Although this article focuses on one particular category of standard wear items that has been hard-hit by rising petroleum prices, you should use this example to evaluate the price increases you have seen in other areas of your business, as well.
"It's a combination of the cost of inflation, price increases, and surcharges," said Jack Moran, of Keystone Plastics. "Consumers will continue to see higher than normal price increases from their broom suppliers because of the significant increases that have taken place with raw steel and polypropylene. Our costs have increased about 15% over the last six months, and that's with us taking every creative step we could think of to keep our costs down. Prices are continuing to escalate out of sight.
"Now, after the hurricanes, added to these higher costs are some availability problems with both polypropylene and resin. Higher prices are one thing, but shortages could be quite another for a contractor when it comes to coping with a situation. We're doing everything we can to secure every pound of resin we can get our hands on. Because we're a large company with a strong financial record, we will be in as good a shape as anyone in the marketplace. Still, when I hear the word 'allocation' it's something to be concerned about."
"We're doing our best, as a company recognized as an industry leader, to be on top of what's happening and then to keep our customers informed," said Bruce Davis, of United Rotary Brushes. "We saw some quick price increases after Hurricane Katrina, and we were already in a volatile marketplace. We've heard there may be some rationing of supply, but no one really knows if that will take place at this point. I think everyone is trying to keep their customers updated with the latest news. I know we are.
"Unfortunately, it seems clear that in the foreseeable future brush prices to the end-users will continue to rise. That means the cost of the goods and/or services everyone is selling will have to rise, as well, if they want to stay profitable. It's a very volatile time, and if people aren't careful to stay on top of this 'pricing increase wave' by passing on the additional costs to their customers, then it will be easy for them to find themselves under water.
"My recommendation, in addition to making sure you keep a good stock of the brushes you need on hand, is to be leery of long-term contracts if they don't include an escalation clause for these types of unforeseen price increases. I know there are people out there with long-term, non-escalating contracts who must be in trouble now because they got into a bidding war with competitors and didn't anticipate the rising prices we're seeing now. In today's climate, everyone should be writing their contracts with an escalation clause designed to cover these types of increasing business costs if and when they occur."
Added Moran, "The fact is that everyone has a somewhat fixed budget when it comes to purchasing consumables, especially if they don't have contracts that allow them to get price increases from their customers. Because of the inevitable lag time, in a time of fast-rising prices it's easy to get into a squeeze situation where purchasing cutbacks simply must be made. Still, I'm also advising our customers that, if they have the capital to do so, they should manage their product inventories of brooms and brushes on the long side. This is not only a hedge against what may become sporadic shortages, but also a recognition that raw material and shipping prices are predicted to continue spiraling upward in the foreseeable future."
Like probably most every business in America, both Keystone and United Rotary have tried their best to hold the line on pricing for their customers. For one, there is natural tendency to hope these types of larger than normal price increases are only temporary. Plus, nobody wants to hit their customers with a price increase, or certainly one that's any larger than necessary. As a result, however, many contractors and suppliers alike are getting to the point where they must take badly needed increases in pricing to continue to be profitable. For that reason alone, we will all be seeing more and larger price increases in many areas of our businesses, from heating oil and electricity, to textiles, food and all types of manufactured goods.
As Bruce Davis emphasized, the current situation especially underscores the importance of the sweeping contractors use with their customers. Especially with service agreements that extend to over a year, it's vitally important that these agreements contain escalation clauses for fuel and other cost of living items. However, even without such clauses, in the current highly publicized recognition of rising prices, especially for fuel, I think you'll find that most customers will accept surcharges added to their bills.
When they send their price increase notices, some contractors simply add in a line item surcharge amount to their invoices and then wait to see who calls to complain or doesn't pay it. That school of thought runs that most clients will simply pay it, and you can negotiate with those who don't choose to do so. However, in my experience, I think it's best to send a letter of explanation out to customers outlining the cost increases you've seen in some different areas of your business prior to adding in the surcharge. This letter can either be included with the invoice, to cut down on mailing expense, or sent out separately. Although I think it's better to communicate the situation with clients, those who prefer no notice say they feel it's better not to draw attention to the new customer surcharge.
Whichever method you prefer, you'll probably find that most customers will pay without comment, a few will call to complain but will still pay after they speak to a manager and get a personal explanation, and fewer still will flatly refuse to pay the surcharge. For this last group, you'll need to decide on a case-by-case basis whether or not to keep providing services at the old pricing level. That's when it becomes vitally important that you know your current profit level for each of your customers.
When customers do call saying they can't pay the new, higher prices, be creative in your response. One thing you can do is to offer to reduce service slightly in order to compensate. Agree to a small reduction in service, with the idea that you will both re-evaluate the situation in 30 days to see if that works out. Because the rise in fuel prices, especially, is so well known, most will realize there's no sense in shopping around for another contractor since the rising costs are hitting everyone equally.
One thing that's absolutely certain about petroleum-based costs today is -- uncertainty. Drastic price increases and/or shortages may be as close as another hurricane or a terrorist strike away. Be sure your business is sheltered from the possible effects by being pro-active with your customer contracts and by planning ahead in your purchase of your brooms and brushes, as well as any other petroleum-based consumables.You may reach Jack Moran, of Keystone Plastics, via email, or call him at 1-800-635-5238. You may also email Bruce Davis, of United Rotary Brushes, or call him at 1-800-543-0008.
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