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Why price increases don't have to spell the end of profit

Why price increases don't have to spell the end of profit

In May 2016, Netflix announced a price hike that sent customers into a spiraling rage. Even after promising existing consumers that they could keep their current rate, Netflix increased the subscription cost by $2 per month for all users. Now Netflix is facing unhappy customers and even a class-action lawsuit. By understanding good negotiation tactics and implementing caps on increases, you can avoid some of the headache that comes with price increases from your suppliers.

In the case of Netflix, consumers have a choice about where they stream their media. Amazon Prime, Hulu, and many other services are stepping up to fill the void. However, with B2B buying, you may feel stuck in a contract with a provider, or perhaps you feel like your options are limited. Even so, price hikes translate into less profit for you and are worth a fight.

Make sure you negotiate price protection and implement caps on increases early. As with any negotiation, once you’re in the final stages of the process, it’s often too late to make these kinds of demands. Add them into your discussion early to get the best deals for you and your business.

Don’t take a supplier’s analysis for granted. If they are telling you a price increase will have a negligible difference, do your own research before committing to anything. Understand exactly how it will affect your bottom line to avoid any surprises down the road. Similarly, you should ask for SKU-level information on all price increases to understand how these increases will translate into higher costs for your business.

Recently, many office suppliers announced a 6 percent increase in paper costs that were coming directly from the paper mills. The truth of the matter is that most paper mills aren’t implementing that high of a price hike; and since the office suppliers are negotiating with paper mills, maybe you should too. Paper is an enormous component of any business’s office supply budget, so you should never take those types of increases at face value. If you’re stuck in a price hike with your vendor, you might want to consider a GPO or other cost-saving strategies to keep more of your profit.

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