How Supplier Pricing Is Determined<\/h3><\/div><\/div><\/div>PurchTips edition #263<\/p>\n<\/div>
How Have Your Suppliers Determined Their Pricing?<\/h4><\/div><\/div><\/div>There are many determinants of supplier pricing. Five of them are as follows:<\/p>\n
\n- Input Cost & Markup\/Margin Strategies.<\/b>\u00a0In many sales, a supplier has to pay for materials and\/or labor that comprise the goods or services provided to your organization. Most suppliers want to recoup those expenses (called “direct costs”) plus an additional percentage (called a “markup”) to cover indirect costs and profit. For some services where the direct costs of serving a single customer isn’t easily evident, the supplier’s overall profit margin goals will guide pricing decisions.<\/li>\n
- Pricing of the Competition.<\/b>\u00a0In many situations, if a supplier’s markup percentage was too high, customers would buy the goods or services elsewhere. So, the pricing of competing suppliers will compel some suppliers to limit their markup in order to match or beat competitors’ pricing.<\/li>\n
- Buyers’ Ability\/Willingness to Pay.<\/b>\u00a0For certain categories, suppliers will determine their pricing by how much they predict that a certain buyer is willing to pay. If the buyer appears to not be too concerned with pricing (e.g., a big company buying a low cost service), the supplier will often inflate its markup. Whereas if the buyer appears to be struggling to find the budget to make a purchase, the supplier may try to find a price point that the buyer considers “affordable” while the supplier still makes a profit.<\/li>\n
- Sales Goals\/Quotas.<\/b>\u00a0In some situations, revenue is more important than profit to a supplier. This importance can be magnified if there is an imminent deadline for a sales quota and sales are lagging. In these cases, suppliers can be flexible with pricing and may even agree to an unprofitable sale if it can be subsidized by other higher-margin sales.<\/li>\n
- Perceived Value.<\/b>\u00a0Some suppliers embrace the philosophy that the higher something is priced, the more likely that it will be perceived as a higher quality product or service. Matching competitors’ pricing may lead to the perception that the product or service is “cheap” or of poor quality, so a supplier may price it higher. This, in effect, can allow them to invest in offering a truly higher-quality product or service.<\/li>\n<\/ul>\n
Recommended reading:<\/strong><\/p>\n\n- Supplier Price<\/a><\/u><\/li>\n
- Are Your Suppliers Using This Deceptive Pricing Tactic?<\/a><\/u><\/li>\n
- Why Buyers Should Care About How Suppliers Set Pricing<\/a><\/u><\/li>\n
- Why Buyers Should Care About How Suppliers Set Pricing<\/a><\/u><\/li>\n<\/ul>\n<\/div><\/div><\/div><\/div><\/div>
Do You Want a More Rewarding Procurement Career?<\/h5><\/div>![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/12\/spsm_verify.jpg\" "\\"spsm_verify\\"")
<\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.<\/p>\n
Earning your SPSM Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential. Download the SPSM Certification Guide today to learn how to get started on your journey to a more rewarding procurement career!<\/p>\n<\/div>
Download<\/span><\/a><\/div><\/div><\/div>Need Better Performance From Your Procurement Team?<\/h5><\/div>![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/12\/services.jpg\" "\\"services\\"")
<\/span><\/div>Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n
You need a performance improvement plan that\u2019s easy to implement and quick to produce results. The NLPA can help.<\/p>\n
Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>
PurchTips edition #263<\/p>\n<\/div>
How Have Your Suppliers Determined Their Pricing?<\/h4><\/div><\/div><\/div>There are many determinants of supplier pricing. Five of them are as follows:<\/p>\n
\n- Input Cost & Markup\/Margin Strategies.<\/b>\u00a0In many sales, a supplier has to pay for materials and\/or labor that comprise the goods or services provided to your organization. Most suppliers want to recoup those expenses (called “direct costs”) plus an additional percentage (called a “markup”) to cover indirect costs and profit. For some services where the direct costs of serving a single customer isn’t easily evident, the supplier’s overall profit margin goals will guide pricing decisions.<\/li>\n
- Pricing of the Competition.<\/b>\u00a0In many situations, if a supplier’s markup percentage was too high, customers would buy the goods or services elsewhere. So, the pricing of competing suppliers will compel some suppliers to limit their markup in order to match or beat competitors’ pricing.<\/li>\n
- Buyers’ Ability\/Willingness to Pay.<\/b>\u00a0For certain categories, suppliers will determine their pricing by how much they predict that a certain buyer is willing to pay. If the buyer appears to not be too concerned with pricing (e.g., a big company buying a low cost service), the supplier will often inflate its markup. Whereas if the buyer appears to be struggling to find the budget to make a purchase, the supplier may try to find a price point that the buyer considers “affordable” while the supplier still makes a profit.<\/li>\n
- Sales Goals\/Quotas.<\/b>\u00a0In some situations, revenue is more important than profit to a supplier. This importance can be magnified if there is an imminent deadline for a sales quota and sales are lagging. In these cases, suppliers can be flexible with pricing and may even agree to an unprofitable sale if it can be subsidized by other higher-margin sales.<\/li>\n
- Perceived Value.<\/b>\u00a0Some suppliers embrace the philosophy that the higher something is priced, the more likely that it will be perceived as a higher quality product or service. Matching competitors’ pricing may lead to the perception that the product or service is “cheap” or of poor quality, so a supplier may price it higher. This, in effect, can allow them to invest in offering a truly higher-quality product or service.<\/li>\n<\/ul>\n
Recommended reading:<\/strong><\/p>\n\n- Supplier Price<\/a><\/u><\/li>\n
- Are Your Suppliers Using This Deceptive Pricing Tactic?<\/a><\/u><\/li>\n
- Why Buyers Should Care About How Suppliers Set Pricing<\/a><\/u><\/li>\n
- Why Buyers Should Care About How Suppliers Set Pricing<\/a><\/u><\/li>\n<\/ul>\n<\/div><\/div><\/div><\/div><\/div>
Do You Want a More Rewarding Procurement Career?<\/h5><\/div><\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.<\/p>\n
Earning your SPSM Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential. Download the SPSM Certification Guide today to learn how to get started on your journey to a more rewarding procurement career!<\/p>\n<\/div>
Download<\/span><\/a><\/div><\/div><\/div>Need Better Performance From Your Procurement Team?<\/h5><\/div><\/span><\/div>Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n
You need a performance improvement plan that\u2019s easy to implement and quick to produce results. The NLPA can help.<\/p>\n
Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>
There are many determinants of supplier pricing. Five of them are as follows:<\/p>\n
- \n
- Input Cost & Markup\/Margin Strategies.<\/b>\u00a0In many sales, a supplier has to pay for materials and\/or labor that comprise the goods or services provided to your organization. Most suppliers want to recoup those expenses (called “direct costs”) plus an additional percentage (called a “markup”) to cover indirect costs and profit. For some services where the direct costs of serving a single customer isn’t easily evident, the supplier’s overall profit margin goals will guide pricing decisions.<\/li>\n
- Pricing of the Competition.<\/b>\u00a0In many situations, if a supplier’s markup percentage was too high, customers would buy the goods or services elsewhere. So, the pricing of competing suppliers will compel some suppliers to limit their markup in order to match or beat competitors’ pricing.<\/li>\n
- Buyers’ Ability\/Willingness to Pay.<\/b>\u00a0For certain categories, suppliers will determine their pricing by how much they predict that a certain buyer is willing to pay. If the buyer appears to not be too concerned with pricing (e.g., a big company buying a low cost service), the supplier will often inflate its markup. Whereas if the buyer appears to be struggling to find the budget to make a purchase, the supplier may try to find a price point that the buyer considers “affordable” while the supplier still makes a profit.<\/li>\n
- Sales Goals\/Quotas.<\/b>\u00a0In some situations, revenue is more important than profit to a supplier. This importance can be magnified if there is an imminent deadline for a sales quota and sales are lagging. In these cases, suppliers can be flexible with pricing and may even agree to an unprofitable sale if it can be subsidized by other higher-margin sales.<\/li>\n
- Perceived Value.<\/b>\u00a0Some suppliers embrace the philosophy that the higher something is priced, the more likely that it will be perceived as a higher quality product or service. Matching competitors’ pricing may lead to the perception that the product or service is “cheap” or of poor quality, so a supplier may price it higher. This, in effect, can allow them to invest in offering a truly higher-quality product or service.<\/li>\n<\/ul>\n
Recommended reading:<\/strong><\/p>\n
- \n
- Supplier Price<\/a><\/u><\/li>\n
- Are Your Suppliers Using This Deceptive Pricing Tactic?<\/a><\/u><\/li>\n
- Why Buyers Should Care About How Suppliers Set Pricing<\/a><\/u><\/li>\n
- Why Buyers Should Care About How Suppliers Set Pricing<\/a><\/u><\/li>\n<\/ul>\n<\/div><\/div><\/div><\/div><\/div>
Do You Want a More Rewarding Procurement Career?<\/h5><\/div>
<\/span><\/div>Are you tired of not getting enough opportunities, respect, and money out of your procurement career? Well, guess what? Nothing will change unless you take action towards becoming a world-class procurement professional.<\/p>\n
Earning your SPSM Certification is the action to take if you want to bring the most modern procurement practices into your organization and achieve your career potential. Download the SPSM Certification Guide today to learn how to get started on your journey to a more rewarding procurement career!<\/p>\n<\/div>
Download<\/span><\/a><\/div><\/div><\/div>Need Better Performance From Your Procurement Team?<\/h5><\/div>
<\/span><\/div>Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n
You need a performance improvement plan that\u2019s easy to implement and quick to produce results. The NLPA can help.<\/p>\n
Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>
- Are Your Suppliers Using This Deceptive Pricing Tactic?<\/a><\/u><\/li>\n
- Pricing of the Competition.<\/b>\u00a0In many situations, if a supplier’s markup percentage was too high, customers would buy the goods or services elsewhere. So, the pricing of competing suppliers will compel some suppliers to limit their markup in order to match or beat competitors’ pricing.<\/li>\n
![](\"https:\/\/www.certitrek.com\/nlpa\/wp-content\/uploads\/sites\/5\/2020\/12\/services-contracting.jpg\" "\\"services-contracting\\"")
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