The pandemic has disrupted supply chains, resulting in shortages of goods and rapidly escalating material costs. Many suppliers have had to adjust their pricing policies. The owner of a successful distributorship recently sought my advice on how to deal with price fluctuations. Some of his largest durable goods suppliers were adding surcharges to all future deliveries. Other suppliers were changing their pricing policy to “priced upon delivery.” With no control over supplier cost policies, he wanted to know about the best pricing strategies for his business.
While the pandemic is unique, I have witnessed similar periods of price instability in the past. My sales experience suggests you consider the following actions when dealing with price fluctuations in your markets.
- Make price increases timely – The media brings the rising cost of goods to everyone’s attention as they occur. Added costs also show up early in the grocery aisle, so your customers will be well aware of price increases. If your suppliers have initiated an increase, give your salespeople copies of suppliers’ letters to share with their customers. These will support your need to raise prices. Don’t get caught waiting. Adjust your prices as early as possible.
- Review contracts – Be sure your contracts include an escalation clause. These allow you to make price increases due to unforeseen circumstances. Most clauses will require you to provide proof of need to raise price when a situation occurs.
- Anticipate surcharges – Be aware that with rapid changes, most manufacturers will include a surcharge to recover their increased cost. This is especially true of products that are quoted with long manufacturing lead times.
- Price at time of delivery – Give the customer your best estimate cost but reserve the right to change it. Make the final price conditional to the cost you incur from your supplier. To protect his margins, I know a contractor who is quoting his projects with a surcharge for final adjustment when they are completed. When costs are changing rapidly, it’s wise to quote the final price at time of delivery.
The strategies listed above are important to consider in these uncertain times. When confronted with a period of price fluctuation, be proactive.