Prices are going up on paper and other critical supplies. Which means print service providers, sales pros and decision makers will be worrying about two things:
1 - How customers will react and
2 - What competitors will do.
The Opportunities in Managing Price Increases
Despite the initial emotional reaction, vendor price increases can be opportunities to increase profits and efficiency. I'll explain.
Opportunity 1
Many companies, especially in competitive industries, are tempted to pass along a price increase dollar-for-dollar. In other words, if it costs them $100 more to produce a job, they add $100 to the job.
But that’s a costly move. It actually decreases a company’s profit margins.
In Practical Post-Pandemic Pricing for Profit, Dr. Albert Bates of the Distribution Strategy Group shows the math behind why the dollar-for-dollar increases should be avoided and how a “percent-for-percent” increase will grow profits. He writes,
Let’s look at the example of a 5% supplier price increase.
The first approach is a dollar-for-dollar pricing. That means that if a product goes up by a dollar inbound, you raise it by a dollar outbound. The downside of this is that fixed expenses stay the same but variable expenses increase — and the result is that you wind up making less money than you did before.
The other, more effective approach, is percent for percent. That means that if the supplier raises the inbound price 5%, you raise your outbound price 5%, as well.
The percent-for-percent approach is superior because the increase in variable expenses is compensated for as the gross margin goes up 5% — and as a result, the profit explodes.
The one caution from the author is that over time, there may be a limit to the number and frequency of price increases before customers begin to resist.
Opportunity 2
Expand your network of resources. For example, in working with the resources of a trade printer like us, you might find that you can outsource some of your in-house work at a lower cost. That could help minimize or avoid a price increase entirely.
Opportunity 3
Collaborate with other companies to increase your buying power in a mini consortium.
Sales reps are frequently willing to work with multiple companies that commit to certain levels of purchasing. The rep gets the equivalent of a bigger account. The companies get better pricing or terms.
To talk about how we can help you offset these upcoming price increase challenges, just reply to this email with some good times to talk.
Or call us at 559-251-8595.
