Gas prices, "A Sign Of The Times"

[Alan Mendelson]

I just got an email from Realtor Jack Ritoli who has been featured on our TV show several times. Jack titled his email "A Sign Of The Times" and it is about how his sign company -- the guys who put the realtor signs in front of houses -- had tacked on a fuel surcharge. Here is Jack's email:

Today my sign post installation company informed me that beginning this month they will be charging an additional $1.50 per installation as a Fuel Surcharge. Really? I know that doesn't sound like much money but....Buying gas is a cost of doing business isn't it? As a Realtor, who do I charge a fuel surcharge to? Right No One! I have to absorb rising fuel costs as just more expense for my business.

Now I can and will shop my sign post installation business around of course but it just struck me that in my business if I hope to compete for new business I must be smart about my expenditures and costs associated with my business. I cannot just pass along additional costs of doing business to my clients. Before I can do that I should look at what I costs I can cut in my business before trying to nail my clients. That's something our government at all levels should try as well. Anyway I'm shopping for a sign company.

Unfortunately all businesses sometimes are faced with a decision about passing along their higher costs of doing business. But I think this example about the sign company charging more because of gas is a unique situation, and here's why:

Because of higher gas prices, there are likely to be fewer home shoppers taking casual trips to hunt for houses. That will mean fewer passersby to see the signs. And Realtors might be better advised to spend their advertising dollars on other methods of advertising to reach potential customers, whether it be direct mail, Internet, email campaigns, radio or TV.

In fact, the sign company might want to lower its prices now thinking that with fewer consumers to reach with road-side signs, it should make signs more economical.

Here's an example, in simple, round numbers:

A sign costs $100 and is seen by 100 people. That means the cost per person is $1 for the sign.

But with the price of gasoline up, the sign will now be seen by only 90 people. And that means the cost per person for the sign has increased to $1.11 -- or about 10% more per potential customer.

The point is that road signs become less valuable when gas prices go up and driving decreases.

Now, I'm not saying that driving and the potential "audience" for the sign will decrease because gas prices are up-- but I think it's a good assumption to make.

And with gas prices up, I think it's a pretty good assumption that more families will shop around for a home on the Internet first and families will pay more attention to direct mail items and to TV and radio ads too -- rather than go on excessive drives at $4+ per gallon.

[jackritoli]

Alan:

I agree with what you have said regarding the sign price increase issue in general. My frustration with constant price increases whether is it's fuel, real estate dues increases, etc as a Realtor I charge nothing upfront to my clients whether they are listing a home for sale or buying a home. I am not paid until close of escrow and in this economy with many of our sales being short sales or bank owed the close of escrow can be, and usually is, months out. When my upfront costs increase I have no one I can pass that on to. I am on a 100% commission arrangement. In fact in todays environment commissions paid are reduced so I have to really watch my expenditures and cash outlay because in some cases you go all the way through escrow only to have a deal fall apart at the very end. I can't remember the last time I've seen reduced costs from any of my suppliers or real estate governing boards.