Contract Renewal: Is this Price Increase Justified?

Categories : Procurement Goals | Evaluate Supply Market | Negotiate | Set Strategy Published on : Dec 15 2017

By: IBISWorld Staff Writer, Savannah George

Your product or service renewal is approaching and the supplier has just notified you that your annual rate will increase. How do you determine whether or not the price bump is justified? After all, you’re the one who has to communicate to management why the decision has been made to pay more or switch vendors. But sometimes it’s difficult to determine whether or not the price hike is a reasonable market increase.

In theory, it’s a good idea to find and compare some recent price changes within the marketplace. But trying to find this information can be tedious, especially if an internet search is your primary mode of research. Furthermore, if you have a new product or emerging technology, such figures could be scarce or nonexistent through a search engine query.

A Better Plan of Attack

The best way to understand whether or not a renewal increase is justified is to look at the three-year price history, three-year price forecast, and key price drivers. This information will give you an accurate look at the pricing environment for a particular product or service.

Price Trend

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