Stagflation is causing serious contractor profit reductions. It’s also making generating leads harder and more time-consuming than ever.
Let’s define stagflation and consider how it applies to contractors to understand better how it impacts your contracting business and what you can do about it.
What’s Stagflation?
Stagflation combines two words – stagnation and inflation. Here’s how these two forces come together:
- Inflation causes goods and services to cost more.
- Stagnating wages fail to increase enough to maintain the purchasing power of consumers and businesses.
For example, the annual official inflation rate reported by the U.S. government was 2.5% between August 2023 and 2024. Not bad, right?
Hold on! Unfortunately, average earnings increased by only 1.5% over the same period, resulting in a net reduction of 1% in consumers’ and businesses’ purchasing power.
With the recent 0.50% reduction in the Federal Reserves discount rate, analysts now believe that the inflation rate will only increase, potentially leading to rapid price increases similar to those experienced during and immediately after the COVID-19 pandemic.
For electrical, HVAC, plumbing and other building trades contractors, inflation has been far worse than 2.5%.
Inflation Is Shrinking Your Profits
What’s behind the pervasive inflation in the trades? Several factors are coming together to cause higher prices:
- Since 2020, electrical supplies like switchgear or copper wire have increased in price by more than 40%.
- The rising demand for copper and other raw materials partially explains this sharp increase.
- Long lead times due to ongoing shipping and logistics challenges have worsened matters.
- Labor shortages are also affecting suppliers and contractors. In fact, contractors have been forced to implement an average 20% wage increase.
Putting these rapid cost increases in material and labor costs together spells skyrocketing costs to complete your jobs, reducing profit margins.
It also means placing competitive bids is harder. Do you pass through those cost increases to your customers and risk losing the job to a hungry competitor, or take a hit to your margins and eat the increases? This is what is keeping contractors up at night.
The Stagnation Side of Stagflation Is Killing Your Job Backlog
Has your sales pipeline been slow? You’re not alone.
Recent data from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development reveals a significant slowdown in new construction projects.
By how much are new starts slowing down exactly? Between June and July 2024, the number of new residential starts dropped by 6.8%. Some sectors are hit harder than others, such as single-family housing, with a worrying decline of 14.1%.
Things don’t fare much better for the commercial sector. Even though numbers don’t quite reflect the same drop in new starts, experts predict flat growth for the foreseeable future.
There is no way around this cold, hard fact: the pool of available jobs is rapidly shrinking.
High construction prices are causing more businesses and consumers to pull back. What does it mean for you? Besides having to spend more to secure fewer jobs, you’re less likely to realize strong profit margins as customers become increasingly price-driven and shy away from large investments.
How To Generate More Customer Leads and Maintain Your Profits in a Stagflationary Environment
Okay, after reading this article to this point, we’re sure you’re pretty stressed out. We get it! The last thing we would have done to you would be to raise these very real issues without providing solutions.
We know that paid digital advertising on Google and Facebook is a key driver of residential and commercial leads. The fastest and most profitable method for driving more leads is through a combination of content marketing and SEO (search engine optimization).
The problem is that doing local content marketing and SEO requires a level of expertise few building trade contractors possess or want to possess. In fact, we surveyed over 300 HVAC, plumbing and electrical contractors to find out if they even had a blog. Over 80% did not, or their blog was last updated more than three months ago, negating its value!
This is a reality because content marketing and SEO are hard work and require deep expertise and consistency of effort. Would you want a marketing expert rewiring the 200-amp panel in your home? We doubt it! The same principle applies to content marketing and SEO.
Here’s the other problem: Most contractors cannot afford to add a couple of digital organic marketing experts to their payroll. Big overhead in the trades can be fatal when the market turns. Between the high barriers to entry and the need to keep overhead low, contractors get stuck in the cycle of buying leads from local lead aggregators and spending thousands of dollars on Google and Facebook each month.
We get it. Leveraging our 13+ years in business and the millions of dollars plowed into our technology platform, Coreform, we’ve developed Tempesta Media Rank for contractors, like you.
In minutes, you can have a done-for-you, outsourced content marketing and SEO program. We either take over the blog area of your website or build one out for you. We handle its SEO and drive prospective customer leads to your website and phone number. You take the calls and bid on the jobs. We even send a monthly report showing how you are doing across all major performance metrics.
We’ve even kept the monthly cost to a small fraction of what we charge our mid-market and enterprise customers for our full Bullseye Effect solution, so that it doesn’t kill your overhead.
Just like that, you’re back in control of your destiny and better armed to win the stagflation war!