Author: Brett Knox
October 30, 2024 - 5 MIN. READ
What is Stagflation?
Stagflation is the combination of persistently high inflation and stagnant wages. In other words, contractors like you are facing higher costs in all areas, whether it’s buying supplies for jobs, paying for gas, or hiring. Even though inflation has been cooling off lately, recent numbers still show a 2.4% inflation rate for the past 12 months.
On the other hand, wages have only increased by an average of 4% for 2024. Wages are growing too slowly to make a real difference, which limits the buying power of your customers.
Contractors Are Facing Higher Costs
Contractors are feeling the pressure of higher material costs, and there is more than just inflation to blame.
Overall, construction costs increased by 1.7% since 2023. However, this number doesn’t tell the whole story. Recent price increases are relatively low, but long-term trends reveal a drastic increase in prices, with the cost of copper wire and cable increasing by over 33% since 2020 and switchgear costing 43% more compared to pre-pandemic prices.
The growing demand for raw materials like copper is contributing to these higher costs. But supply chain issues further drive up prices.
Supply chain disruption, port congestion, and regional unrest are pushing cargo shipping costs to new highs. For instance, the cost of insuring shipment nearly doubled in September 2024 for cargo ships going through the Red Sea due to unrest in the area.
What does this mean for contractors? You’re spending more on equipment, parts, and materials which reduces your profit margins. Higher costs combined with longer lead times also make it difficult to put together competitive quotes. As a result, more customers are choosing to delay jobs, hoping that prices will go down in the near future.
Why Is Finding New Leads Getting Harder?
As explained above, high material costs result in higher quotes, causing many customers to reconsider and delay jobs.
However, there are other factors at play:
- Inflation is impacting the budget of many consumers, and electrical upgrades and repairs simply aren’t high on their list of priorities. Stagflation creates low consumer confidence, making people less likely to spend money, especially on larger electrification projects.
- Interest rates have remained relatively high in an effort to fight off inflation. It makes products like home improvement loans costlier. It also impacts new construction, reducing electrical jobs available in this sector.
It’s also important to keep in mind that you’re not the only one struggling with lead generation. As customers get harder to find, larger contractors are doubling down on paid advertisement and other lead generation efforts to ensure their crews are getting 40 hours of work per week. Aggregators are also taking over search results, collecting leads and selling them to contractors at a premium.
Small contractors face a tougher battle for online visibility:
- Aggregators and large contractors have the budget to develop and publish content consistently to take over search engines.
- They also have the capability to develop a strong presence across multiple channels, including social media, where customers are increasingly looking for products and services.
- Google has implemented several changes to its algorithm over the past couple of years, making it difficult for businesses that lack a dedicated digital marketing department to keep up.
Balancing Quality With Risings Costs
Your profit margin is down for two main reasons:
- You’re spending more on equipment, parts, and materials.
- Finding leads is harder, and fewer leads convert. It means you’re spending more on lead generation, and you invest more time and effort into nurturing them.
When faced with these challenges, many contractors make the mistake of settling for lower quality.
Low-quality materials cost less. However, the result is usually not what customers expect. In an age where over 75% of consumers trust online reviews, delivering low-quality work isn’t a sustainable strategy.
Quality also matters when it comes to lead generation. A quality lead is someone who is close to making a purchase, preferably a large one. Unfortunately, aggregators often fail to deliver lead quality and focus on volume instead since it’s what their business model is based on.
If you offer electrical contracting services, you can win more bids and increase profits by paying less for electrical materials and equipment as well as business essentials.
Unlock unparalleled savings and streamline your procurement process with Raiven. We allow contractors to consolidate their purchasing power to negotiate exclusive discounts, favorable service terms, and priority access to supply chains. Say goodbye to the hassle of negotiating with multiple suppliers and enjoy significant cost savings on wire, panels, conduit, EV charging stations, lighting, load shedding, tools, and more.
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Raiven is committed to supporting electrical contractors by providing unbeatable prices on equipment, parts, and maintenance supplies. Experience the convenience of our streamlined purchasing platform for quick and efficient procurement. Other key benefits:
AI-powered purchasing toolsRaiven is your one-stop solution for saving time and money in a stagflationary environment.
Summary: Stagflation is a mix of high inflation and slow wage growth, raising costs and making it harder for electrical contractors to find new leads. Let’s take a closer look at how this challenging environment is impacting contracting businesses.
