Why Are Invoice Costs Rising in 2021?
After the one year anniversary of the pandemic in March, I was asked by a client how their budget would be affected over the next year. They had heard from providers that rate and material cost increases were driving significantly higher invoices. I was curious about how invoice costs have changed over the past year, so I looked to our data for answers.
We analyzed over 2 million work orders across 4 trades, and found that invoices costs have increased in each trade since the prior year. Cost increases for both labor and materials are responsible—but not how you think.
Here is a summary of the cost trends by trade:
- Plumbing invoice cost increased 12% in 2021 from 2020, driven largely by rising labor time on site.
- General repairs invoice cost rose 11%, driven by lumber costs and time on site.
- Electrical invoice cost increased 4%, driven by material prices and labor time.
- Kitchen equipment invoice cost grew 12%, driven by material costs and labor rate.
You can see a breakdown of the invoice costs in the following chart.
Overall material costs are up 15% in the first quarter this year compared with last year, with a similar effect in each trade.
Labor costs are also up, but we found that hourly labor rates have held steady or decreased, with the exception of Kitchen Equipment. There are a couple takeaways from this.
First, the steady labor rates suggest that the anticipated technician shortage has not yet appeared. As industries like restaurants and fitness ramp up operations in summer 2021, demand for services will increase, and the supply of technicians may be stretched. We will continue to monitor labor rates to track this situation.
Second, the increasing labor costs are generally driven by technicians spending more time on site in 2021. One cause is more complex repair jobs being completed after maintenance was deferred during 2020.
To back up our analysis, we reached out to the head of a top-performing provider to understand what they are seeing in the field. Supply chain disruptions and shortages have led to increased material costs across the board, from PVC for plumbing, to copper for electrical services, and even to the manufactured components that go into kitchen equipment.
There is fear in the provider community that they will not be able to hire technicians as fast as technicians are retiring. A top California provider mentioned an inability to hire techs due to unemployment benefits.
Outlook: Costs are increasing in 2021. How are you managing your budget?
As the world opens back up, materials prices are expected to continue to rise, based on futures pricing. As demand for facilities services increases, labor rates will likely increase, as well.
I shared these results with our customer, and while they expected rising costs, they were surprised by the magnitude. An annual cost increase of over 10% has massive budget implications, because it breaks the historical trend used for budgeting. The customer now feels more prepared for budget conversations, because they have ServiceChannel market data to justify their request.
Now is the time to avoid using historical averages or “peanut butter spreading” to account for your budget. Use your detailed historical cost data to inform granular budgets by trade, region, and project that emphasize your strategic priorities.
The strongest lever for reducing costs is finding more cost-effective providers that complete work with fewer labor hours. While it’s impossible to completely avoid rising material and labor costs, you can minimize the negative impact by ensuring you have the best network of providers possible.