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No End in Sight

Business costs and budgetary concerns persist beyond pandemic, officials say

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The coronavirus pandemic may be considered over, but local business leaders say continued inflationary pressure coupled with a highly competitive job market have contributed to challenges when developing budgets in recent years.

Sean Thouvenot, vice president and co-owner of construction firm Branco Enterprises Inc., says the inflation rate, which hit 9.1% in June 2022, has significantly impacted his company. While inflation slowed to 3% for June of this year, according to the U.S. Bureau Labor of Statistics, Thouvenot says Branco’s cost of doing business has risen 20%-25% over the last two years. Labor costs, including higher wages and added benefits, along with higher material prices, have been primary contributors.

“When we get a contract, we used to not order anything until you needed it or if it had a lead time,” he says. “Now, with the price increases that are sometimes weekly, as soon as you get awarded the project, you basically better order everything you can order right then.”

The biggest price increases are specialty hardware, electrical items and anything that contains steel, Thouvenot says. Branco has pushed the past couple of years for more stored materials to better lock in prices.

“That’s been huge as far as helping and controlling battles over pricing with suppliers,” he says. “If you’ve got a project that is two years [away], unless you want to be the bank for the project and order the materials, you would wait a year or so. Then the supplier is going to be like, ‘That was a year ago and my prices went up 50%.’ Who is going to pay the difference?”

Thouvenot says longer projects also require estimating components, such as fuel prices, when it’s time to bid. Average gas prices in Missouri were $3.58 per gallon as of Aug. 2, according to AAA. That’s up from $3.27 a month prior.

“You’ll bid accordingly. Hopefully, you’re covered, but truth be told, fuel could be $5 a gallon by the time you’re done with the job,” he says. “It’s just an educated guess.”

Seeking strategies
For Chelsey Bode, owner and CEO of Pearson-Kelly Technology, the past couple of years have been challenging on profit margins. When setting a budget, she’s factoring in increased staffing costs, noting the information technology solutions company is paying 10%-20% more to fill the same positions it was pre-pandemic.

“We’re trying to find that balance of still being competitive in the market, still trying to make sure that our margins are protected but also incurring that without a huge sticker shock to the clients that we try to serve,” she says.

Increased employee wages and benefits are a significant factor for driving up business costs, according to Springfield Business Journal’s 2023 Economic Growth Survey. Almost 50% of respondents noted investing in their workforce as the top-ranked factor, compared with 26% for the next highest answer, which was cost of goods and materials.

While the turnaround time to get products such as printers, copiers and other office equipment is getting closer to pre-pandemic levels, Bode says the company has implemented strategies such as installing reconditioned units or off-lease equipment to help its clients.

“We had to get very creative with certain hiccups that we weren’t accustomed to having to address,” she says. “Before COVID, if we had an order, for most hardware, we would be able to turn around and install in about 10 to 15 business days, worst-case scenario. Now, we’re looking at about 30 to 45 days turnaround and are excited about that. We had one point when we were selling things that clients had been waiting for 13, 14 months.”

Bode says Pearson-Kelly leadership challenged its employees to come up with cost-saving measures, which led to implementing ideas including the use of more electronic meter readers instead of manual labor for billing purposes. The company has had internal competitions, such as seeing who could get more clients to use digital invoicing instead of snail mail, she says, adding those lead to staff rewards.

“Maybe it’s a pizza party, or maybe it’s a half (paid time off) day that they win,” she says. “Just trying to make it fun, as we all are in this.”

OMG Commerce LLC CEO Brett Curry says his company has reached 50 employees, a nearly 40% increase since 2020. Part of its strategy to mitigate the cost of payroll, which he said has increased between 20% and 30% over the past couple of years, is restructuring departments to allow for more productivity. The e-commerce marketing agency also has shifted to a new product management system and increased prices – strategies he considers to be long-term solutions.

“Just about every industry has increased their prices, and we’ve done the same thing,” he says, noting a 20%-25% hike for minimum ad buys it produces for clients. “That’s helped with margins a little bit.”

Self-promotion also has been paying dividends, Curry says.

“We’ve been investing more in our own ads than we ever have before at the beginning of this year, and that’s working very well,” he says. “Our pipeline is about as full as it’s ever been.”

Company revenue was $14 million in 2022, he says, a 21% year-over-year increase.

Talent hunt
As hiring needs have increased, so, too, has the starting pay to recruit talent, Curry says. Starting salaries used to be in the $45,000-$60,000-per-year range; now, it’s mostly shifted to $50,000-$70,000, he adds.

“We’re hiring now where we’ve shifted our focus to mostly people with a year to two years of experience minimum,” he says.

The hunt for talent in the construction industry remains a significant challenge, Thouvenot says. Branco employs 145 but wants more.

“I could take 20 skilled people today if I could find them – heavy on the skilled,” he says, noting the company had $68 million in local billings last year. 

Boosts to starting pay and bigger raises for existing employees have been commonplace at Branco over the past few years, he says.

“If you know nothing and show up here, it’s $19 an hour. That’s somebody that basically walks in and has never had a hammer in their hand, which is crazy,” he says, adding the starting pay for an inexperienced worker was $14 per hour a couple years ago.

Bode says Pearson-Kelly is about fully staffed at 46, nearly on par with its employee count from two years ago. However, the company is about more than just staying competitive in compensation, she says, declining to note starting or average pay.

“We find that a lot of the people we recruit and retain are often looking for more than a paycheck,” she says. “They want respect, transparency, a voice and ability to put their stamp on a focused vision. We work equally hard at bringing these opportunities to our team members.”

Growth is on the minds at Pearson-Kelly, Bode says, noting the company is looking at acquisition opportunities and expanding its footprint outside southwest Missouri. While declining to disclose figures, she says the firm is tracking for 12% revenue growth this year as supply chain issues subside.

“For our size, trying to grow much more than that would be a challenge to manage,” she says.

While both Curry and Thouvenot expect increased costs to carry over into next year, they are planning accordingly for future budgets. However, Thouvenot says the workforce shortage his industry faces also will remain a long-term issue.

“Trying to keep people employed, you’re going to get people you don’t want or you’re going to get very unskilled people. It’s going to be tough to get people into the industry,” he says. “I see the labor costs continuing to rise just to keep people employed.”

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