Forward pricing is a major concept, especially in business. It provides consistency and it also enables you, as the customer and the retail buyer purchasing from you, to plan and follow through with it. This concept is very vital, especially for people doing long term projects like construction of a house which might require lots and lots of lumber feet. It is also helpful to lumber retail sellers who get order after order.
Interestingly, as significant as it seems, most companies ignore its essence. The worst part is most customers are hardly aware of the concept as well as its significance and they let it slide. But that should not be the case. The presence of forward pricing options in a company should be one of the factors you consider before purchase. We shall look at the top five reasons why you need forward pricing for your lumber purchasing. But, before that, let’s define what forward pricing is.
What is forward pricing?
The simplest way to explain forward pricing could be; a seller and customer settling on a certain value for a commodity, and the seller agreeing to sell the commodity to the customer in the future but using the agreed price of today. There are other technical aspects of the same but above is the basic meaning of the term. A good illustration will be, if the price of a 10 sq. ft. board now is $10, you can have a forward contract with the seller so that when you purchase the commodity in future, you can always use the previously agreed on price. You do not need any upfront payment.
While in most cases the forward pricing is determined on a daily basis, some companies can guarantee it for an even longer period. Take for instance, Sherwood lumber, the number one seller of siding, paneling, decking, flooring, and other construction materials. The company offers a forward pricing of up to 2 years.
Top reasons why you need forward pricing for your lumber purchasing
Consistency is an important aspect for everyone, whether you intend to use the lumber directly or to resell it. However, it is more important to the latter. This is because customers like working with the same prices and they want to go to the store knowing how much they are to spend. Therefore, you can fetch more customers if you also have a guaranteed forward price with the same supplier/distributor/manufacturer.
Easy price quoting
Prices of commodities, lumber specifically, is never constant. They keep fluctuating, which makes it difficult to quote a price to your customers. But, some distributors like Sherwood Lumber use forward pricing and this allows you to confidently quote the price to your customers.
The smooth running of the project
This is for the case of a retail buyer working on a project. You can always continue with your project without it coming to a standstill because of the fluctuating prices
Avoiding price uncertainty
A repeat buyer; someone who gets tenders for delivery and therefore purchase many feet of lumber from distributors, will be at a better place if he/she can find a way to avoid volatile prices which might lead to losses.
These four are just the tip of the ice berg of the top reasons why you need forward pricing for your lumber purchasing. There are many others that will certainly help you run your business smoothly and confidently.