How to Handle Supplier Price Increases

Increased prices across most industries are inevitable, and contracting is no exception. Knowing how to respond to a supplier's price increase can be challenging. You can accept the new prices, negotiate, or find an alternative supplier. How you handle the price increase is up to you.

Here’s how contracting professionals can handle supplier price increases. 

How to Respond to a Supplier Price Increase

1. Communicate with Suppliers 

The first step in dealing with supplier price increases is discussing them. Establishing and maintaining open lines of communication with your suppliers is crucial. Without open communication, understanding and handling unexpected price bumps can be difficult. 

Information and knowledge are powerful negotiation tools. You must arm yourself with as much information about the situation as possible.

Ask your supplier to explain why prices have increased. Is it due to higher raw materials costs, upped labor costs, or other factors? Understanding why the cost has risen can help you know how to handle it. 

2. Negotiate Lower Prices 

Don’t unquestioningly accept price increases without an in-depth discussion. 

Before accepting a supplier price increase, review your purchasing history, current contract terms, and market pricing. Having this information on hand will help you negotiate from a position of knowledge rather than reacting to the increase.

Here’s how to negotiate a price increase with a supplier:

Leverage Loyalty 

If you’ve been one of your supplier’s long-time customers, remind them of your loyalty. You may be able to leverage your loyalty for a discount. 

Offer new terms for your supplier that include lower prices for your business. You could also ask for a grace period with the old prices before paying the updated prices. 

Buy in Bulk 

If you can’t negotiate lower upfront prices, you can look into purchasing larger orders. Often, buying in bulk leads to lower prices per unit. If this is a feasible option for your business, consider buying in bulk to save money in the long run. 

Flexible Payments 

While the price itself may not be up for discussion, you can always try to negotiate better terms. Ask your supplier for extended payment periods or early payment discounts. This negotiation could ease your business's cash flow problems due to the price increase. 

3. Evaluate Your Options 

If negotiations don’t yield the results you were hoping for, it might be time to explore other options. You can look for new suppliers if you can’t budget for the price increases. It’s important to consider the following factors as you shop around. 

Evaluating the current market is essential before you decide to jump ship with your current supplier. Conduct a thorough market analysis to see if your current supplier's prices are competitive. 

If the market has shifted and prices are rising across the board, you might not want to switch suppliers. However, if your supplier's rates are significantly higher than others, it might be time to switch. 

Look for new suppliers who can offer better rates without compromising on quality. 

4. Expand Your Business 

While negotiating price increases or shopping around for new suppliers is an effective strategy, it’s not the only way to combat rising costs. 

Diversifying your revenue streams can help lessen the blow of supplier price increases. You can offer secondary services like gutters, siding, solar, or windows to boost your business. 

You can also expand your business into new geographic areas or market segments. This expansion can increase your customer base and reduce your business’s dependency on fluctuating market conditions.

Building a Strong Contracting Company

Learning how to respond to a supplier price increase is an important part of protecting your profitability. Whether you negotiate new terms, explore alternative suppliers, or adjust your operations, taking a proactive approach can help minimize the impact of rising costs.

Managing supplier costs is just one piece of running a profitable contracting business. JobNimbus helps contractors track jobs, manage customer relationships, create estimates, and improve operational efficiency so they can adapt more effectively to changing market conditions.