Economic headwinds spurred by the pandemic and geopolitical tensions actively work against your customer-specific pricing agreements. Because of inflation and supply chain issues, it is critical to ensure B2B contracts and customer agreements are current. This blog discusses the benefits of pricing and revenue software. It helps businesses set appropriate prices for agreements and ensures that customers purchase the agreed-upon quantities.
How Do Inflation and Supply Chain Issues Threaten B2B Contract & Agreement Profitability?
“Prices are rising all over the world at a pace that hasn’t been seen in decades,” writes Bloomberg in an August report on inflation and the supply chain. The report shows that countries like the U.S., the United Kingdom, Canada and Brazil have seen consumer price index increases between six and 12 percent since June 2019.
The global supply chain crisis is making today's inflation worse, according to the Federal Reserve Bank of San Francisco.
These problems are well-known to business leaders. But how they are affecting the profitability of your customer-specific agreements? Contracts and agreements are important for B2B businesses, especially with their largest and most important customers. Many B2B companies make over half of their sales through long-term customer contracts or agreements.
Let’s look at customer price agreements, and why they are often undermanaged. First, we will examine why this poses a challenge for generating profits. Then, we will demonstrate a faster and more efficient method for updating agreement lines when costs fluctuate.
Why Are Customer Price Agreements Often Undermanaged?
Customer price agreements can be difficult to update, whether en masse or even as a one-off. Salespeople protect these relationships and hey customers with agreements may expect special treatment or have significant buying power. Significant margin leakage often ensues as agreements fall prey to a “set-and-forget” approach that creates the following problems:
- Agreements are created without an expiration date
- Customers receive a net price that remains in place for years even as costs rise
- Little visibility into the number of active agreements, their profitability, or their last update
Today’s market volatility amplifies the cost of undermanaging agreements. How quickly can agreement prices be updated and shared with customers when market triggers cause prices to move? Read on for an elegant solution that raises visibility throughout the agreement lifecycle and drives pricing action in the field.
Read more: Navigating the Broken Supply Chain
How Quickly Can You Move Agreement Lines Up as Costs Rise?
Many B2B companies have hundreds or thousands of active customer agreements containing hundreds or thousands of agreement lines. Recent years have created a nightmare scenario for pricing managers charged with maintaining agreement price health.
Suppliers used to raise prices once or twice a year. However, now they are increasing prices more frequently. This makes it more difficult to predict the price changes.
A heavy-duty parts distributor that works with Zilliant used to plan for new costs each January and July. Now the company is receiving monthly updates from some suppliers, sometimes with just five days’ notice.
This is a common refrain.
Increasing costs necessitate price increases. However, making changes to agreements stored in ERP systems or spreadsheets is challenging and impractical.
It's important to have a comprehensive view of all customer agreements. Identifying affected agreement lines, updating them, and promptly informing sales reps is crucial to prevent price agreements from causing margin leakage.
Zilliant Campaign Manager™, paired with Zilliant Price Manager™, significantly streamlines a company’s ability to update prices within its agreements. Price Manager™ ingests new cost data and makes it easy to identify agreement lines that fall below desired margin thresholds.
Users can leverage Campaign Manager™ to quickly publish pricing actions to Zilliant Deal Manager™ or any other agreement management system. Sales reps are notified about new customer-specific price guidance. They are then provided with clear instructions on how to handle affected customers.
Detailed visual analytics show the customer’s historical prices, agreement price, and a customer-specific target price. Sales reps receive the guidance they need to take immediate action with their customers.
Read more: What is Revenue Operations and Intelligence?
How Has a Volatile Economy Increased Contract Compliance Risk?
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