Economic headwinds spurred by the pandemic and geopolitical tensions actively work against your customer-specific pricing agreements. Due to inflation and supply chain issues, it is critical to ensure B2B contracts and customer agreements are current. In this blog, learn how pricing and revenue operations and intelligence software ensures that agreements are priced to target and that customers are buying their committed volumes.
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.
Exacerbating the problem is a global supply chain crisis that the Federal Reserve Bank of San Francisco claims is accounting for more than half of today’s inflation.
These problems are well-known to business leaders, but do you know how they are affecting the profitability of your customer-specific agreements? Contracts and agreements are critical to most B2B businesses, as they are often used with a company’s biggest and most strategic customers. It’s not uncommon for more than half of a B2B company’s sales to be transacted via long-term customer contracts or agreements.
Let’s start with a close look at customer price agreements, and why they are often undermanaged. We’ll explore why this is problematic for profitability before introducing a faster, more efficient method to update agreement lines as costs change.
Why Are Customer Price Agreements Often Undermanaged?
Customer price agreements can be difficult to update, whether en masse or even as a one-off. Sales reps tend to guard these relationships closely, and the key customers with agreements may expect special treatment or hold significant buying power. Significant margin leakage often ensues as agreements fall prey to a “set-and-forget” approach that creates the following problems:
- Agreements get created without an expiration date
- Customers receive a net price that remains in place for years even as costs rise
- Little visibility into how many agreements are active, how profitable they are, or when they were last updated
Today’s market volatility amplifies the cost of undermanaging agreements. When prices frequently need to move due to volatile market triggers, how quickly can the prices within agreements be updated and shared with customers? 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.
Whereas price increases from suppliers may have occurred once or twice a year in the past, they are now increasing in frequency while decreasing in predictability. 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.
As cost increases necessitate price increases, executing changes to agreements that are locked away in ERP systems or in spreadsheets is cumbersome and untenable. Rather, having a comprehensive view of all customer agreements, seeing which agreement lines are impacted, making updates, and communicating those changes to sales reps in a timely manner is critical to ensuring that price agreements don’t become a source of 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 thus alerted of the new customer-specific price guidance and given clear direction on how to take action with affected customers.
Clear and detailed visual analytics show sellers the customer’s historical prices, the customer’s agreement price, and finally a customer-specific target price. Sales reps are given 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?