Too often, businesses continue to sign contracts with their business services suppliers, assuming that because they have a good relationship, they are getting a fair price. However, failing to review contracts and negotiate pricing from a position of power can cost money that instead could be going to the bottom line.
“Business owners are focused on the day to day, and they can’t be an expert in all areas of a business,” says Marc Schwalb, Strategic-Partner, Schooley Mitchell. “While businesses are often led to believe that their pricing is reasonable, how does one truly know?”
Smart Business spoke with Schwalb about the benefits of having an outside expert review your contracts and negotiate rates with your suppliers, which can save businesses money and time.
Why are some companies overpaying on business services contracts?
Just like you, business services suppliers are trying to make as much money as possible. Even if they are cultivating relationships, they are making a profit. There is nothing wrong with this; however, it lends to getting inaccurate information from suppliers.
It’s so critical to challenge your pricing because the less you are paying out, the more you are keeping for your business to invest in other things, like product development, marketing, or employee bonuses. Too many companies don’t realize that by simply reducing costs from their suppliers, they can increase their profits without having to increase sales.
Why do companies struggle with cost?
Companies typically have their purchasing department review costs. When companies don’t have the workforce, these tasks get put onto others when it’s outside their knowledge base.
For anyone working on contracts, how can they really know what is a good rate? Just because someone tells you it’s a good rate doesn’t mean it is. An expert can give you a better understanding of what you’re paying and to what extent it is or isn’t fair. A no-obligation review can validate that.
How else can an outside expert help reduce the cost of business services?
Two key areas that companies struggle with are not reading the fine print in contracts and not knowing what the industry pricing standards are. For example, some credit card processors put in their contract a liquidated damages clause, meaning to get out of your contract you would have to pay a year’s worth of fees. And with waste contracts, if you don’t have an inflation cap written into the contract that says, for example, they can’t raise prices more than 5 percent a year, you may be looking at a 10 to 20 percent increase.
The largest problem is not knowing what industry standard pricing is because companies are just comparing the new deal offered to your previous deal or against other offers. And if you don’t know what others in your industry are paying for telecom, waste, shipping, credit card processing, or fuel, you won’t know what to ask for or what you can negotiate. Having thousands of pricing deals negotiated with every service supplier working with every industry gives you the knowledge to win the negotiation.
There is also a misconception that once you’re in a contract, nothing can be done to help you. An outside expert can reach out on behalf of the company to an existing supplier and say, ‘We don’t think this is fairly priced, and we’d like to work out a new agreement.’ Suppliers will collaborate with us to keep their customers happy and produce a fairer agreement.
An expert can also save companies valuable time and resources to keep pricing optimized. An example is that experts can monitor pricing monthly to report on savings and bring to your attention more ways to save.
One client we had for shipping, we discovered that the supplier was offering a promotion of a 5 percent additional discount on every package shipped. The shipping company is not going to reach out to tell you about this. However, your expert will. Cost reduction companies also have contacts they can reach directly for access to nonpublished pricing. You’ll get better pricing using those contacts, as opposed to an employee calling a customer service line. ●
INSIGHTS Business Services is brought to you by Schooley Mitchell