A contract for annual deliveries that you entered into in 2010 is worth almost 20 per cent less in 2018 if it has not been adjusted to reflect inflation. What does this mean for your bottom line?
At House of Control, we usually say that the rumour that inflation is dead is greatly exaggerated. Although inflation may not be quite so “alive” as in the 1970s and 1980s, the truth is that money still loses value.
What does that mean for your business? Well, it means that all companies with fixed deliveries to their customers should have the contractual right to adjust prices in line with the consumer price index. And, as we will discuss more later, it is equally important to ensure that you actually increase your prices according to your agreement.
Figures from Statistics Norway show that prices in Norway have risen by
- 18 per cent since 2010
- 15 per cent since 2012
- 11 per cent since 2014
- 5 percent since 2016
What would it mean for your bottom line if your prices were adjusted upwards with the general inflation in the country?
We are obviously aware that many markets are characterised by strong competition and that not all companies are in a position to increase their prices. However, we boldly claim that many business that do not already adjust their prices in line with the consumer price index would receive acceptance from their customers. In the long run, you are going to win customers based on parameters other than simply having the lowest price, right?
Terms of agreement are often in place, but prices are still not adjusted
At House of Control, our experience is that many companies are actually good at including price adjustments in their customer agreements. Such provisions lay the foundation for a long-term customer relationship; the customer experiences gradual and small price increases, the supplier safeguards its own profitability and avoids demanding but necessary renegotiations of agreements.
Although there are many who include price adjustments in their agreements, far fewer actually manage to implement those adjustments. Why? There are many reasons why companies don’t have optimal management of existing customer agreements. It could be anything from practical challenges – like simply forgetting – to focusing primarily on deliveries and new sales, and sometimes there is uncertainty about where the agreements are located and what they say.
Fortunately, there is a solution that can ensure your company optimal management of customer relationships, while still allowing you to continue to focus on growth and quality in your deliveries. Complete Control reminds the company and the account manager when it’s time to adjust prices. The indexes are also directly available in the solution, making price adjustments just a few keystrokes away.
Even without a calculator, you can calculate that revenues of NOK 10 million in 2010 must be adjusted to NOK 11.8 million in 2018 to realise the same value. That means a lot for the bottom line in any business – because salaries, rent and other input factors have definitely not stood still during that time.
Want to know more about how indexes and price adjustments can affect your bottom line?