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Multi year contracts and price increases

Discussion in 'Business Fundamentals' started by JThompson, Oct 23, 2003.

  1. JThompson

    JThompson Member
    from NYC
    Messages: 71

    Given the recent large increases in insurance costs as well as the instability of gas prices, I was wondering how you determine prices for services in multi year accounts. I have one large account that is willing to consider signing a 3 year contract but only if there are NO prices increases. I am VERY hesistant to do this for the above factors. I kind of shot myself in the foot since they saw my original proposal for the next 3 years. Otherwise I could have averaged the three years and presented is as no increases. Even that would have made me uncomfortable. How do you guys handle this?
  2. BRL

    BRL PlowSite.com - Veteran
    Messages: 1,277

    I'm kind of confused about what you said. I'm assuming they saw your 3 year proposal with increases each year? If so, now you take the 3 years and average them. This is the new price you give them with no increases now. For the future, assuming they don't see the original prices, do the same. Factor your desired increases and then figure out the equal payments that will equal that total and submit that. They will think "good- no increases", but in reality they are paying a little more in the beginning of the term than you actually would have charged for the one year. I have seen articles and people post here that for signing a long term contract they are happy to have that commitment & don't raise the price, and subsequently a single year contract is priced higher.
  3. wyldman

    wyldman Member
    Messages: 3,265

    If it's a good contract,then why not rate lock them for the 3 yrs.If your going to profit way more than your costs are going to increase,then take it.

    If they have alrady seen your price,I don't think they are going to agree to something higher,even if there is no increase for the 3 years.I usually add 3-5% per year on single year,and give them a break on multi-year deals.
  4. Michael F

    Michael F Senior Member
    Messages: 203

    In part you also have to look at is how much will it cost (in sales & advertising) to replace that customer. I have read about some lawn co's that guarantee no price increases...ever. Their prices go up same as ours as well as product goes up also. Don't remember the exact rate he quoted for replaceing customers, but it was high (maybe 20-30%)? Take this into consideration.

    from SE PA
    Messages: 38

    profit margin

    winter weather services should have the highest profit margin of your business mix. our margin in:

    2000 85%
    2001 84%
    2002 86%

    computed off directly related costs. labor materials and supplies

    If you are to close in margin to lock in for 3 yrs. you should reevaluate your cost and pricing structure! a 5% increase in product, insurance or gas should not be a large concern.

    Would you pass on a 15% price decrease in salt, to your customer?

    Look at your profit daily, weekly, seasonally, and by service provided. don't forget to project into the future, and budget. training and review always lead to efficiency.

    Efficiency = Profit
  6. Alan

    Alan PlowSite.com Addict
    Messages: 1,393

    I submitted a bid today that was being accepted either as a one year or a three year price. My one year price is actually the "middle" year of the three year one.