How to Handle a Price Increase From Your Manufacturer
A price increase is sometimes a genuine cost pass-through and sometimes a negotiation. The questions you ask determine which you are in. Establish what drove it, what is specific to your product, and what alternatives exist before accepting or resisting.
First Establish What Happened
This guide is for brand owners receiving a price increase from a contract manufacturer in India.
Price increases have different causes and the appropriate response differs. A raw material cost rise affecting the whole category is a genuine pass-through. A general increase applied across all customers is a commercial decision. An increase specific to your product may reflect that your batch size or specification has become uneconomic for them.
Ask directly what drove it, which components of the price moved, and whether the increase is general or specific to your product. A manufacturer with a genuine cost basis will usually explain it; one without will be vague.
Then check your own costing, because an increase that sounds large may be small relative to your landed cost, and one that sounds modest may matter more than expected at your margin.
Questions to Ask
Before responding.
- Which specific cost components have increased, and by how much?
- Is this increase applied generally or specific to my product?
- Is the driver a raw material, packaging, labour, energy or testing cost?
- Is it expected to be permanent or does it reflect a temporary market movement?
- Does the increase apply to my current batch size or would a different volume change it?
- Would a specification change reduce it, and if so which element?
- Would a longer commitment or forecast improve the price?
- When does it take effect, and does it apply to orders already placed?
- Is there notice period in our agreement that applies?
What Is Usually Negotiable
More than accepting or refusing the number.
| Option | When It Works |
|---|---|
| Phasing the increase | Where the manufacturer’s cost rise is gradual |
| Timing it from your next batch | Where orders are already placed or planned |
| A larger batch at the old price | Where you can absorb the volume within shelf life |
| A volume commitment for a better rate | Where your forecast is reliable |
| A specification change | Where a non-essential element is driving the cost |
| Packaging change | Where printed components are the driver |
| Longer payment terms as partial offset | Where cash flow matters more than unit cost |
| A review date | Where the driver may reverse |
A review date is worth asking for where the cause is a market movement. Increases driven by temporary raw material conditions frequently remain after the condition has passed, because nobody raises the question.
What Not to Do
Four responses that cost more than the increase.
Reduce Testing or Documentation
A deferred liability, not a saving. The quality controls are not where the money should come from.
Switch Manufacturers on Price Alone
A switch changes the product and risks your reorder rate. The cost of that usually exceeds the per-unit difference.
Accept Without Checking Your Costing
You may be absorbing something trivial, or something that makes the product unviable. You need to know which.
Ignore It Until the Next Order
Increases taking effect on orders already planned create disputes. Clarify timing immediately.
The switching point deserves weight. Manufacturer changes produce noticeable product differences, and the reorders lost can exceed the saving by a considerable margin.
Absorb or Pass On
The decision, once the facts are established.
Recalculate your contribution per order with the new cost. If it remains acceptable and your reorder rate is healthy, absorbing a modest increase is often the better choice, since a price change to customers carries its own risk.
If contribution falls below what the product needs, the question becomes whether to raise your price, change the specification, or accept lower margin for a period. Raising your price works better where reorders are strong, since buyers who have decided a product works are less price sensitive.
And if the increase makes the product fundamentally marginal, that is information about the product rather than about the manufacturer, and worth acting on separately.
Checklist
On receiving an increase.
- Ask which cost components moved and by how much.
- Establish whether it is general or specific to your product.
- Establish whether it is permanent or market-driven.
- Clarify the effective date and whether placed orders are affected.
- Check any notice provision in your agreement.
- Recalculate your landed cost and contribution per order.
- Explore phasing, volume, specification and packaging options.
- Ask for a review date where the driver may reverse.
- Do not reduce testing or documentation to offset it.
- Do not switch manufacturers on price alone.
- Decide between absorbing, raising price and changing specification.
- If raising price, check reorder strength first.
- Record the new cost basis and the reasoning.
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Frequently Asked Questions
What should I ask first?
Which specific cost components have increased and by how much, and whether the increase is general or specific to your product. A manufacturer with a genuine cost basis will usually explain it; one without will be vague.
What is negotiable besides the number?
Phasing the increase, timing it from your next batch, a larger batch at the old price, a volume commitment, a specification or packaging change where that element is the driver, payment terms as partial offset, and a review date.
Why ask for a review date?
Because increases driven by temporary raw material conditions frequently remain after the condition has passed, simply because nobody raises the question. A review date puts it back on the agenda.
Should I switch manufacturers over a price increase?
Rarely on price alone. A switch changes the product and risks your reorder rate, and the reorders lost can exceed the per-unit saving by a considerable margin. Treat it as a product decision rather than a procurement one.
Should I absorb it or raise my price?
Recalculate contribution per order with the new cost. Absorbing a modest increase is often better where contribution remains acceptable, since a price change carries its own risk. Raising price works better where reorders are strong.