Practice Management: What you can do about a price rise
Advice | Practice management
What you can do about a price rise
By Claire Bennett
Claire is a practice management consultant in the BDA Practice Support Team, she qualified as a solicitor in 2008 and advises general dental practitioners on associate contracts and a wide range of employment and other law
A typical dental practice will have multiple agreements with suppliers for products and services like stationary, IT software/maintenance, dental sundries, pharmaceuticals, cleaning supplies, clinical waste disposal – the list goes on. These agreements are a necessary part of running an efficient and compliant dental practice. However, in an era where the costs of operating a dental practice continue to rise, these agreements must represent quality and value for money.
Like any other business, a successful dental practice will be one that makes a profit. Dental supply businesses will want to make a profit too. One way of doing that is to increase prices and it is common for suppliers to try to do so. Should a practice owner accept such price increases without question or are there other, potentially more productive responses, they might make?
Can suppliers increase their prices?
Whether a supplier can increase its prices will depend to a large extent on the agreement between the parties. Ordinarily, practice owners will enter into agreements for the supply of goods or services for an initial fixed-term, signing a standard set of terms and conditions. Within that initial contract term, unless there are clauses permitting it, or the practice owner agrees to it, the supplier will not be able to increase its prices.
Outside the initial term, the contract may allow for price increases – significant ones and sometimes ones without notice. This is perhaps to be expected – after all, a supplier wishing to run a successful business will be keen to take any and all opportunities to maximise its profit.
Preparation for price increases
Price increases should be considered and prepared for at the outset of any relationship with a supplier.
During initial discussions, practice owners should ask questions of a supplier. For example, explain the ordering process, will any discounts and preferential rates be applied, what the payment terms and condition are and in what circumstances may prices rise. Anything the supplier confirms verbally should be reflected in the written agreement and, if not, the practice owner should speak up.
Researching potential suppliers can provide important insight into the size of the supplier, its position in the market, how it views its reputation and its reliability. It can also help practice owners understand the business’ pricing arrangements and how and when they may change. Conversations with colleagues who might use or have used the supplier can provide valuable insight too. It pays to shop around and take advantage of competition. This way practice owners can ensure they get the best value for money.
Most practice owners will agree to the standard terms and conditions of a supplier. These should be checked and checked again for clauses relating to pricing and price increases. Before they enter into an agreement, practice owners should understand how and when prices may be increased, the amount of notice that will be provided by the supplier of any increase and termination provisions.
How to respond to supplier price increases
The first thing a practice owner who has received notification of a price increase should do is check any contract, terms and conditions or written communications – check for clauses permitting price changes and for terms relating to those changes.
Many suppliers will send out standard letter informing customers of price increases. Do not ignore these letters. A failure to deal with such correspondence may mean a renewal period is missed, insufficient notice of termination is served and an existing contract ‘rolls over’. Contracts often roll over on much less favourable terms, for example, increased prices, curtailed credit periods or extended ‘tie in’ periods.
There are very few, if any, circumstances in which it which it makes business sense to accept a price increase without first speaking with the supplier to understand exactly why the uplift is necessary and how it will take effect. Practice owners should ensure they speak to key staff involved with pricing – those with decision-making power. Regardless of whether the price increase is justified, speaking to the supplier may provide a valuable opportunity to negotiate.
The research undertaken at the outset of the relationship with a supplier should pay dividends during any negotiation process. By understanding the supplier’s prices, including discounting policies and supply costs, it provides a clearer view of whether uplifts are justified, discounts or concessions are genuine and any ongoing costs. It may be that a practice owner is able to negotiate a continuation of the existing price or a lesser increase. A supplier might be persuaded to honour the original price if something is offered in return – an increased contract term or an upfront payment for the total cost, for example.
It is important for any practice owner to monitor their own costs and expenditure. Unjustified attempts to drive a supplier’s costs down just because they can be may mean the practice receives lesser quality products or services in the future because the supplier has looked to maintain or increase its own profitability elsewhere.
If negotiations fail and the increased price cannot be justified, walking away and finding a new supplier may be the most commercially viable option. If this is the case, be sure to undertake the research and due diligence previously described to ensure supply and patient service levels are not detrimentally affected and issues around pricing can be avoided in the future.