Customer "won't accept price increase" wtd

mrcompletely · Jun 22, 2011

Recieved a letter today from a customer stating that they won't accept any price increases, but are looking for price reductions. Does anyone have any idea how to respond to such drivel in a civilized manner? I have been thinking of a price increase for all our customers anyway. I am trying to list everything that the cost has increased on: labor, materials, tooling, transportation, taxes, utilities, and so on. I can't think of anything the cost has decreased on. Can you?? Please hit me with your best ideas on responding to this. THanks

bhigdog · Jun 22, 2011

Send him a polite letter informing him of the date and amount of your price increase with the suggestion he order early to take advantage of the old price.............Bob

sfriedberg · Jun 22, 2011

Do you need to respond? If this was a blanket mailing and didn't specifically ask for a response/pledge/whatever, I would not respond to it at all. The only exception might be if there's something about making their parts that you know could be improved. Then you might respond that some cost reduction might be possible if they will change their design for better manufacturability. I would mention the specific parts, but not the changes you have in mind, and tell them to initiate an engineering conversation (not a purchasing conversation!) if they are really interested.

Be polite in any event, even if you have to tell them flat-out they won't get what they want.

Purchasing departments are free to make whatever screwball proclamations they want. Unless your business has been "captured" by a customer like Walmart, you are free to laugh up your sleeve.

rj newbould · Jun 22, 2011

You don't say if you make a product, or you make repeating jobs for them, or what?????

If it's not either of the above, how will they know whether or not you have increased prices...?

You need to charge what you need to charge in order to make a profit. You set that price, not your customer.

If you can't make a reasonable profit, why be in business? No need to itemize why you need an increase in price, if that's the case. They already know that and don't want to pay it. Tough luck Charlie....

Try telling the gas-electric, etc. companies that you won't accept an increase in prices.

Ox · Jun 22, 2011

Wifey tried telling me that I wasn't quoting high enough and that I am "out of touch" with what things cost today. (Not so much today _ today, but last yr when there wasn't two nickles to be seen at the same time to rub together.)

So I asked her to go through and tell me what had changed drastically in the last few yrs - overhead wise....

So she went down the list...

Turns out that hydro has went up maybe 15% in the last 20 yrs, Heating may have went up a bit in the last yr, but in the last 5? Most everything else had stayed the same, and it almost seems like something had fallen a slight bit. ??? Shirley interest rates have tanked, and that can be a diff of 4 digits a month! So - IMO - per whatever unit you like to use - If you take emotion out of the equassion and actually doo a cost comparison - overall - I'd say that biziness is at the very least the same as before. Depending on your version of before.

How far a red cent goes once you git home may be a nother story, but around here (geographic area - not "my shop") - payroll is less now than it was 10+ yrs ago for sure! So to say that you (I) need to make more $/hr is only right if that is what it takes to compete for labor in your area, or what it would take to entice you to leave your shop and go to werk for The Man.

Yes - materials are up. Fuel to deliver those parts is up. Don't forget tho to figger in the diff in fuel milage that you git now as compared to the timeline you want to compare to... Tooling may cost more. Maybe not? But does it cost more per finished goods out the door? I doubt it.

Otherwise?

Make sure when you are looking at the numbers that you relate it to "per unit". If you moved to a nother building and got more space, better electric, nicer looks, and better visibility, I'm not sure that you can say that costs have went up, you may have just decided to spend more. Those added costs could be justified under "sales" and "employee retention" more logically. (just a fer-instance, I have no idea of your situation)

-----------------------

Hate to ruin a good subject with logic...
Ox

SND · Jun 22, 2011

It's an unfortunate industry we're in, and it's what's expected of us. I keep hearing on tv that we're supposed to use our strong canadian dollar now to buy more equipment and become more efficient to compete... it doesn't work that way anymore.
Quite a few things went up here, electricity, taxes(on all level), insurance, fuel, material, machines are just about all taking a good price increase this year, most already have, some tooling is going up as well, and it's no different than it was a few years ago, well maybe some of it is made in China now so they get a higher margin on a poorer product..
I'm at the point where I don't even know what my shop rate is anymore, each different part ends up what it ends up being, just trying to keep the overhead low.

But yeah.. I likely wouldn't reply to that email either, although depending on how much I cared, I might ask how much their product went up in price on the retail side?
Funny thing related to that, a company I know makes a really special product and the margin is not that great maybe 10% profit at the most when all is said and done, they were asked to lower their price because the reseller only makes 70% mark up passing it along.

RJT · Jun 22, 2011

Make yourself a hero. Calculate your true cost including profit. Send a quote at 10% more than that cost and show an 10% discount on the quote. The buyer will look like a genius, and you are showing them how you are saving them 10%. They really don't care about your expenses. They have been instructed to lower costs. I do this on custom tooling, but don't have an answer on how to apply it to established production prices. I do know that showing a discount on the quote and invoice is like majic to purchasing agents.

RedBaron · Jun 22, 2011

mrcompletely said:
Recieved a letter today from a customer stating that they won't accept any price increases, but are looking for price reductions.

The person who wrote that letter sounds stupider than any person who takes it seriously.

Is that the way they do business?

Are they in such dire straights that they're trying to jerk around the supply side of their business to make ends meet?

Unless otherwise, as said, they must be Walmart size, throwing their weight around.

What I wouldn't worry about is how to respond to them, but rather will they be able to pay any invoices going forward.

Gary

S_W_Bausch · Jun 22, 2011

rj newbould said:
You don't say if you make a product, or you make repeating jobs for them, or what?????

If it's not either of the above, how will they know whether or not you have increased prices...?

You need to charge what you need to charge in order to make a profit. You set that price, not your customer.

If you can't make a reasonable profit, why be in business? No need to itemize why you need an increase in price, if that's the case. They already know that and don't want to pay it. Tough luck Charlie....

Try telling the gas-electric, etc. companies that you won't accept an increase in prices.

Send a reply stating you are worried that "no price increases" is a selective policy, but you are willing to go along with it if they can supply copies of the "no price increase" letter that were sent to the following:

Internal Revenue Service
Social Security Administration
State and local authorities
Local utilities
Their health care providers
Their health insurance providers
Their ex-wife
Colleges their children attend

And any advice they can supply, regarding those strange phone calls where the caller just laughs a bit, calls you a moron, and hangs up.

tjd10684 · Jun 22, 2011

If this customer is not one of your top 5 than I would say "If you don't accept my prices then I don't accept your work."

Tom3197 · Jun 23, 2011

We had a customer do the same thing to us. Simply told them that that was our cost and if they can't deal with then they need to find another supplier.... the came back a few months later and no longer bitch about a small price increase.

Greatbasin · Jun 23, 2011

I purchased a couple of stainless tubing products from a company that I have purchased from before although they are not my regular. Anyway they hit me with a $ 14.35 surcharge per ticket which was two bucause they said they would be shipped from two different locations. I asked and they said that the company said that it was for the cost of the office, pretty good for a few hundred tickets per day. I have been in your shoes, Good Luck John

TDegenhart · Jun 23, 2011

Part of your decision is how you value your work, not just your prices. One of my business partners was approached by a local company that was outsourcing work from their shop. There was a lot of work and at a slow period for orders. The kicker was that the company wanted a healthy reduction in rate, about 30%. My buddy got stars in his eyes but negotiated a 20% reduction. The company is now in bankruptcy, my buddy got nothing.
Tom

Madis Reivik · Jun 23, 2011

If customer wants lower prices, give your terms. It is not fighting it is negotiating.
I have usually changed payment terms if customer wants price to drop - i.e. 100% prepay gives 5% discount. If customer has available finances, it is beneficial for both.
Or, if the part can be redesigned for cost reduction, make an offer for design work if you'r capable for it. Usually reducing or eliminating some features can reduce machine time - i.e make the part for one sided milling if it demanded two sided milling before.

Limy Sami · Jun 23, 2011

I've been faced with this a few times and

#1 If the customer's a waste of space - suggest a long walk on a short pier.

#2 If the customer's worth it, first off I go through my pricing with a fine tooth comb, (after all I've made the parts and know all the kinks) in order to see if what they want is possible?

#3 If #2 is, it gives room for negotiation.

#4 If #2 isn't,.. or the customer won't negotiate - see #1

P.S.

If the customers an ***hole refer to #1 - wearing heavy boots.

Ries · Jun 23, 2011

Ox said:
Wifey tried telling me that I wasn't quoting high enough and that I am "out of touch" with what things cost today. (Not so much today _ today, but last yr when there wasn't two nickles to be seen at the same time to rub together.)

So I asked her to go through and tell me what had changed drastically in the last few yrs - overhead wise....

So she went down the list...

Turns out that hydro has went up maybe 15% in the last 20 yrs, Heating may have went up a bit in the last yr, but in the last 5? Most everything else had stayed the same, and it almost seems like something had fallen a slight bit. ??? Shirley interest rates have tanked, and that can be a diff of 4 digits a month! So - IMO - per whatever unit you like to use - If you take emotion out of the equassion and actually doo a cost comparison - overall - I'd say that biziness is at the very least the same as before. Depending on your version of before.

How far a red cent goes once you git home may be a nother story, but around here (geographic area - not "my shop") - payroll is less now than it was 10+ yrs ago for sure! So to say that you (I) need to make more $/hr is only right if that is what it takes to compete for labor in your area, or what it would take to entice you to leave your shop and go to werk for The Man.

Yes - materials are up. Fuel to deliver those parts is up. Don't forget tho to figger in the diff in fuel milage that you git now as compared to the timeline you want to compare to... Tooling may cost more. Maybe not? But does it cost more per finished goods out the door? I doubt it.

Otherwise?

Make sure when you are looking at the numbers that you relate it to "per unit". If you moved to a nother building and got more space, better electric, nicer looks, and better visibility, I'm not sure that you can say that costs have went up, you may have just decided to spend more. Those added costs could be justified under "sales" and "employee retention" more logically. (just a fer-instance, I have no idea of your situation)

-----------------------

Hate to ruin a good subject with logic...
Ox

I am not actually moving to Ohio- but it sure sounds like a different planet than the one I live on.

Around here, EVERYTHING IS UP.

My utilities have all steadily gone up- not just electricity, but propane that I use for some heating and forging has almost doubled lately. My minimum on my water bill and my garbage bill have both gone up in the last year. My phone bill is up. My internet service costs more.
Yup, my fuel is more- and I have had the same truck since 2003, so no big changes in mpg has helped that.
Plus, if I send anything by FED-Ex, UPS, or common carrier, all of those costs have gone up a LOT.

Materials are, in some cases, double what they used to be. I just got quoted $15 plus a pound for some bronze I will be needing, stainless, which I use a lot of, is about DOUBLE what it was five years ago.

But consumables are way up to- cause of that explosion, acetylene is way up, but normal welding gases are up, sandpaper creeps up, drill bits cost more- basically everything my machines and processes consume costs more.

In ours state, wages are always creeping up- we have the highest minimum wage in the nation, its about $8.75, which means no floor sweeper worth hiring is under ten bucks, and decent shop help is more. It hasnt gone down.

My real estate taxes went up again this year, even though, if I sold, the place is worth less than it was a few years ago. Sales tax went up.

My own power costs are all up- virtually every food and drink item I dont grow myself (which is a fair amount) had gone up a LOT lately. My Carhartts cost more. Leather gloves are a couple bucks more a pair.

Frankly, I cant think of anything I use in the making of products that is cheaper now than it was five years ago, and most things are 20% or so higher. Some, much more.

I guess Blue Ray players are cheaper- but I dont have one, and dont use one to make stuff. All the things I DO use are more, and more, and more, it seems.

Even my damn kids grew, and now need more expensive supplies.

Toolroomguy · Jun 23, 2011

Do what the local bike shop did, same shop rate, but now there is a hazardous waste charge, a shop supplies charge, a fuel surcharge, etc.
I thought the overhead in your shop rate bought the shop rags. Guess not.

Boris · Jun 23, 2011

We had a customer exactly like that, every year wanted to pay less for the parts.

But we had an advantage in that we made 1000's of parts for them, so we'd hmm and we'd whistle and we'd say things like "well we guess we can knock 2% of the price per part"
While not bothering to tell them that thanks to skilled machinists building various fixtures, the cost of making each part was about 50-60% of our selling price.

More seriously.
Just send back a letter detailing how much your costs have gone up in the past year, and asking how they expect you to still be in business if you cannot cover your costs.

Boris

cash register · Jun 23, 2011

I had a customer that called one day questioning my late charges that I had applied to the over 60 day bill. She stated emphatically that they only pay on the 90th day and they do not pay late charges. She also stated that there was no way they could pay sooner, because the invoice had to go through there process of multilevel approval, which took the time.

I said that was perfectly fine, now that I knew what the terms were.

I then proceeded to ask her, who I should speak to about raising the rates, as I have a higher rate for businesses that do not pay on 30 days.

Amazingly enough, the next months bill got paid in 30 days, and it continued that way for several months until the service was discontinued.

Negotiation is where it is at.

cncbrit · Jun 23, 2011

Quantity, Quantity, Quantity.... Whenever price is an issue I tell them ... well the next price break is at ### parts.

That or, Quality, Delivery, Price.... Pick two.

-2% 7 days

-5% COD

Customer "won't accept price increase" wtd

Aluminum

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Aluminum

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Diamond

Cast Iron

Titanium

Aluminum

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