How many letters like this have you had recently?
Feedback from our clients is telling us that you'll have had a lot over the last few months!
While price increases are expected (and in some ways unavoidable) with the changes in exchange rates impacting your UK suppliers and filtering through, the question is, how should you respond?
Here are some options:
You could do nothing, and let this wave of price increases go quite easily without doing anything, but it won’t be long before you see a significant dent in your profitability!
Take a sample situation where a company is turning over £4m at 35% GP. If all of your suppliers put their prices up 10% (for the sake of this example) your 35% GP could all of sudden become 29%, and you lose £240k GP (which means you lose £240k NP). I think I’d take some action if this is what is at stake!
|Purchases||(2,400,000)||10% price increase →||(2,640,000)|
|Gross Profit %||35%||29%|
Have a face to face meeting and find out why they’re putting their prices up
Don’t accept price increases without having a face to face meeting with the supplier (if they’re a significant enough supplier) to ask them why they’re putting they’re prices up.
Most likely they’ll blame it on the exchange rate changes – if so, be transparent about how much you could put your prices up to customers, and ask the supplier to share the difference, rather than making you take the whole knock!
Use the price increase to negotiate
If you can’t get any kind of reduction, use the price increases as a lever to negotiate something of value to your business. If the supplier is going to put their prices up, only accept it if they’ll giveyou something in return, for example:
- Better credit terms
- Early settlement discounts if you pay early
- Faster / more flexible delivery
Get quotes from alternative suppliers
Find alternative suppliers and get alternative comparative quotes, and see how your existing suppliers revised pricing stacks up with the comparative quotes. Be prepared to move supplier if an alternative can offer you better value.
Put your prices up
Implement your own price increases to your customers, to offset the increase in your costs. This is an essential step that every business should look at taking.
Please note – This report is provided for information only. No action should be taken without consulting detailed legislation or seeking independent professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this report can be accepted.