How To Negotiate Price Increases
PurchTips - Edition # 117
By Charles Dominick, SPSM
Do You Find Price Increases Hard To Negotiate?
January is a common time for supplier price increases. So, today, purchasers are trying, perhaps unsuccessfully, to
negotiate those price increases away.
How do you negotiate price increases? Better yet, when should you begin preparing to negotiate price increases?
The answer to that second question may surprise you. You should have begun preparing to negotiate a price increase when you originally obtained the current price.
Before I elaborate, consider a typical supplier justification like "We must raise your price by 28% because aluminum costs went up 28% last year."
That point is tough to argue if you're not prepared. So, when first obtaining quotes for high-annual-spend products or services, ask for suppliers' cost breakdowns.
A cost breakdown will indicate the percentage of the total cost that is comprised by each major material, other materials, labor, overhead, and profit. For example, a cost breakdown may look like this:
- Wood = 20%
- Aluminum = 7%
- Other materials = 3%
- Labor = 45%
- Overhead = 13%
- Profit = 12%
If a supplier proposes a price increase and tries to use the above type of justification, you can say something like:
"Aluminum increased by 28%, but aluminum only comprises 7% of your price. Considering nothing else, your price should only
go up by 2%."
Should you stop negotiating there? Heck no!
You can argue that productivity gains should have reduced labor costs enough to offset the small materials price increase. Maybe you can even convince the supplier that productivity gains more than offset the materials price hike and that your price should go down!
The key is to get that cost breakdown when you first obtain pricing from a supplier. Suppliers can be hesitant to share such information at times, but are usually more willing when they are competing for your business.
(keep reading for a FREE Offer)
Spotlight On Professional Development Opportunities
Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards improving your ability to deliver results.
You see, today's employers refuse to reward employees for yesterday's skills. They demand that purchasing professionals like you use the most modern skills and achieve unprecedented results. They want you to save more money, achieve better operational performance, and reduce risk.
Earning your Senior Professional in Supply Management® (SPSM) Certification is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSMSM Certification at:
The Latest Purchasing News
- Purchasing Managers: Are you frustrated by your team's performance? You may be eligible to have Next Level Purchasing help you create a performance improvement plan. Learn more at www.NextLevelPurchasing.com/manage
- Considering a career move? There are approximately 100 jobs preferring candidates with the SPSM Certification posted at www.NextLevelPurchasing.com/jobs
Do you want to learn the latest trends in purchasing and supply management? The 2007 Purchasing & Supply Management Career & Skills Report is out!
"The 2007 Purchasing & Supply Management Career & Skills Report"at