Managing Vendor Price Changes
What to do when a vendor decides to increase prices? It starts with having an agreed scope in place.
We live in an interconnected world, and getting our work done for clients often means we have to rely on a lot of things outside of our control - for instance, the average small business uses 22 apps just to get their work done!
If we don’t keep an eye on these fixed costs as well as our time costs when pricing services for clients, this can seriously eat into our profitability - not to mention leave money on the table!
Moreover, what happens when one of your crucial vendors decides that they need to increase their prices to continue giving you the product and service you are asking for? How can you easily manage this change with your clients so you don’t have to take on the full brunt of a vendor price increase?
Having a detailed and agreed scope of work with your clients not only helps you get paid but also helps you greatly when your vendors put up their prices too!
Questions to ask yourself when a vendor puts up their prices
Question 1: Who/what is affected?
Having all clients on a formal contract detailing their service package and including any vendor costs will make identifying clients impacted by a vendor price increase a few minutes work.
For instance, if all your contracts are in Ignition, you could use a proposal filter for the vendor’s service to identify all clients that are impacted by the price change. See the video below to learn how.
Or, if you don’t outline your vendor costs specifically in your contract services, you can tag a proposal with the vendor’s product and filter by tag.
Question 2: What steps will we need to take?
So there are a few options to consider when a vendor increases their costs -
You may be able to absorb the vendor change in price if it is small, spread across multiple clients that you have in a growing business or if you have been able to increase profitability elsewhere.
Better yet, why not price in an increase when you are pricing your services? You can do this by either not passing on the full discount provided to you if a vendor offers a volume-based discount (as is common with ledger software) or by packaging your vendor costs into your service package and including a margin. Pricing in changes will make your pricing more robust to change and offer you a bit of a margin if vendors keep costs the same.
Finally, if the change is too large, is client specific, or a change by a vendor also means clients must accept a change to your terms, you may have to pass on the difference to your clients with a scope change to their contract.
But fear not, having contracts electronic and editable makes this a lot easier too!
It’s easy to amend a proposal in Ignition if costs change during the term of a contract
First things first - ensure you communicate to the client about the change
- What is the nature of the change - if available, it is good to link to any Press releases from the company too.
- What actions do you need them to take? Will you require their sign off? A reply? Or no action on their part?
You can do this communication either personally over the phone or alternately by email - if choosing the later option, below is something to help.
Dear client,
We are writing to let you know of a change to pricing of our third party {vendor} subscription which we are currently managing for you.
Monthly prices have gone up approximately xx% which is inline with the increased research and development investments made by {vendor} to provide an even better product/service to customers {insert other relevant factors - e.g., heightened regulatory requirements etc.} - please read more about this on {the vendor’s} website. {link to release on price increase if available}
What do we require from you?
We will be amending the current agreement in place for this financial year/period to reflect this change - which will be effective {xx date}.
{if not requiring anything from them} We will not require you to re-sign this agreement, but please do let us know if you have any queries.
{if requiring signature} We will be re-sending your agreement with this new pricing in the next few days, please review and sign as soon as possible, and let us know if you have any queries.
Kind Regards,
Your Name
Secondly - Amend proposals and have them accepted
Whether you already have a contract in place or you are just engaging a client, Ignition makes it easy to update the contract with a new price - have a look at this video to explain how.
Thirdly - Make sure to update invoicing and payment authorisations
After getting your new contract accepted, you need to be quick smart in updating your all your recurring invoices and payment authorisations to reflect this change - so you don't miss out!
The great news is, if you are using Ignition, this is all done for you automatically (or auto-magically as I like to say) when the proposal is accepted! No need to manually edit invoices in your ledger or log-in to update your payment gateway!
Some Additional Tips
- Use subscription or service names and list the inclusions - being more specific on inclusions in vendor services will help you if clients upgrade account tiers too.
- Subscription only proposals - having a separate proposal only for your vendor costs (common for software subscriptions) can save you from having to edit a whole proposal. Also, with our new continuous recurring billing feature this also means you can continue billing indefinitely if nothing changes.
- Package your subscriptions and services and consider pricing in changes to your package - e.g., 10% margin for changes in fixed costs during year.
- Use Service Terms for vendor services to specify that pricing is based on current vendor prices and how you will inform them of these changes. See the below for an example to include for subscription prices. Find out more about service terms here.
Example Service Term for a Subscription Service
- Subscription pricing is accurate at the date of issue of this contract and may be changed by the vendor during the term of the contract.
- If a change occurs in vendor pricing, we will inform you in writing (email) of this before the next billing period affected by the change and will/will not require a formal scope change (new letter) to be signed by you. Changes will take effect in the next billing period unless specified otherwise.
Combining the right proposal platform - that allows you to 1) easily identify clients impacted by a price change and, 2) easily amend your proposals for vendor price changes and 3) update invoices and collections automatically - with good old-fashioned communication to your clients will mean you are equipped for an easy transition when your vendors do increase their prices!
As always let us know if you want some help with scope changes - Onwards and Upwards!
