How to Handle Price Hikes From Your Vendors

Author: Katie Truesdell Date: April 30, 2014

Related Content: Resources Money Financing Basics

Small business owners don’t have to sit there and take it.

It’s a simple law of economics: After a recession, as demand for goods and services rises, increased employment and wages put upward pressure on prices. And no one has been immune.

For small businesses, price hikes are more than an irritation; they can be a serious blow to cash flow. If you’re facing a vendor price hike, consider these tips.

Ask questions about the increase.

First, ask if your vendor will consider honoring the original price. “Every business has choices to make when it comes to pricing,” says Jennifer Martin, owner of Zest Business Consulting in San Francisco. “If they really value your business, they may be willing to let things ride. You won’t know unless you ask.”

Pass on the cost.

But if economic factors are at play, then the vendor likely can’t budge. Your next move is to determine whether it’s possible to pass any of the price increase on to customers.

You can typically pass on some of the increase to patrons who order frequently and repeatedly depend on you in an emergency because they value your product/service. Joel Freimuth, CEO of Blue Pearl Consulting in Chicago, says a few order trends—frequency, emergency and delay—can help you justify price increases to these customers. Chuck Reaves, an Atlanta-based sales trainer, says you can ask your vendor to provide a cost justification to help you explain it to your customers.

Or, absorb the cost.

Patrons who routinely delay before ordering typically will scout out better pricing from competitors. And that’s when it is better to absorb the increase.

Esther Luongo Psarakis, who owns Taste of Crete, a Greek food company in Edison, N.J., deals with price fluctuations for her food products often. She absorbs increases by fine-tuning other areas of her business—such as streamlining tasks for more efficiency and raising the minimum order amount for wholesale.

Evaluate your vendor.

If the vendor won’t budge on the price and ordering trends aren’t the reason for the price hike, then it may be time to cut ties with the vendor. To determine if that’s the right course of action, Freimuth says, consider these questions:

·      Does your vendor make special allowances for you (payment plans, special orders or delivery instructions)?

·      Is your vendor competitively superior in terms of quality, reliability and reputation?

If you answered yes to these queries, there’s still value in your vendor. But now ask this:

·      How often has your vendor raised prices in the past?

High frequency of raised prices can be a regular hit to the bottom line, and switching vendors could mean savings in the long run.

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