Part Two in the Save Money Series
I used to ride a Harley. A fellow rider once told me, “There are two kinds of motorcycle riders. Those who have wrecked and those who are going to.” After his crash and broken leg…I sold my bike.
The most common question I get from lumber dealers and truss manufacturers is, “I have a big job to quote that begins in 2-3 months. Where do you think lumber prices will be at that time?”
I am always reminded of the motorcycle comment and recall from past experiences, there two kinds of long term job quotes…“Those that have bitten you, and those that could bite.”
The worst thing that can happen in a long-term contract to supply trusses is a lumber market rally that was not priced in. The job is suddenly transformed from year maker to year breaker. Having weeks of work to do, knowing it is a losing proposition can ruin a business.
Fortunately, now in 2016, there is a reliable way to project where lumber prices will be in the future.
The blueprint of how to price / quote extended delivery jobs
- The most important variable to consider is “when” the lumber for the project will actually be purchased. As best as you can, try to nail it down to a specific week or at least a two-week period.
- Next, consult an historically accurate lumber market forecast that projects when prices will most likely rise and fall, such as Layman’s Lumber Guide, Forecasted Decision Points.
- Then, looking at that projection, note which weeks are forecasted to rise, fall, or remain unchanged between the time of the quote and the time the lumber will be bought.
- Lumber prices change an average of $5 per thousand board feet each week of the year, either up or down. Therefore, for each rising week add $5 per thousand board feet to the quote. For each declining week deduct $5. On unchanged weeks, obviously, no adjustment is needed.
- Total it all up. If the number is positive, add that number to your quote. If the number is negative, DO NOT deduct it from the current market valuations.
- Why? By the time you get the order, the customer will expect you to honor the quote if prices are higher. If the market has moved lower, the expectation will be an adjustment lower. Build in a negotiation cushion.
- Finally, and most importantly, time your purchase to coincide with a low point in the lumber market cycle as identified by the Forecasted Decision Points.
The primary concern in our industry since the Great Recession is low margins. Most times low margins are the result of low initial bids and/or failure to allow for rising lumber prices.
Layman’s Lumber Guide and its Forecasted Decision Points will help you make more profitable quotes…that won’t bite you.
A veteran lumberman, Matt Layman publishes Layman's Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.org.
Next month:
The Real Cost of Slow-Paying Invoices