How to Pass Through Cost Increases Without Losing Trade Customers

A cost increase holds when it is differentiated by product and by customer, explained to each customer with evidence, and controlled so exceptions do not give it back. Pricing Insight measures success by the realised rate, not the announced one. The five steps below draw on Pricing Insight diagnostics of 810 respondents in eight businesses.

Your suppliers have raised their prices twice. You announced an increase in March, and by June exceptions, delays and quiet discounts had given much of it back.

How common is the problem?

Weak price-increase execution was raised by 138 respondents in all eight Pricing Insight client diagnostics, 156 mentions in total. It belongs to a wider problem family, price increases and cost recovery, that drew 502 mentions from 810 respondents. The size of the increase is rarely the cause. The process behind it is: a blanket percentage instead of differentiated moves, exceptions granted by whoever sits closest to the customer, and no measure of what was realised against what was announced.

Why does the announced increase differ from the realised one?

An increase has an announced rate, an implemented rate, a realised rate and an in-period result. Most management reports show only the first. The worked example below shows how far apart they sit.

• Announced increase: 5.0%, or A$5,000,000 annualised.
• Implemented, after key accounts holding 30% of revenue are exempted: 3.5%, or A$3,500,000 annualised.
• Realised, after one percentage point is discounted back at the quote desk: 2.5%, or A$2,500,000 annualised.
• Realised within the first 12 months, with prices effective from month 3: A$2,083,000.

Basis: hypothetical example. A$100,000,000 addressable revenue, volume held constant, rounded to the nearest A$1,000.

Half the announced increase is realised in this example, and the board sees A$2,083,000 in the year rather than A$5,000,000. Each step down has its own cause and its own fix.

Why do price increases fail?

The diagnostic comments describe the mechanisms in staff's own words. Rises are announced, then exceptions are granted, timing slips and the message to customers is unclear. Price lists are updated irregularly, legacy prices persist on long-standing accounts, and cost increases are not recovered at all (204 mentions, 165 respondents). Freight, returns and service are absorbed without anyone calculating net margin by customer (104 mentions, 85 respondents). Large customers dictate terms and the increase stops at the accounts that carry the most volume (38 mentions, 33 respondents).

The capability scores point the same way. Across five diagnostics and 663 respondents, the statement "we have a documented process to manage price increases" averaged 61.4%, and the lowest client, a security hardware manufacturer, scored 43.6%. The statement "the impact of price increases on profitability is analysed" averaged 68.8%. Businesses model an increase better than they run one.

What makes an increase hold?

Five steps. Each closes one of the gaps in the worked example.

1. Set the floor from cost, product by product. Identify the cost category that moved (raw material, freight, energy, labour), the proportion to be recovered and the timing. A cost-recovery floor is set per product family, not as one company-wide percentage.
2. Differentiate by product. Lines facing the steepest cost rises move most; others move less or hold. Analysis of each stock-keeping unit (SKU) shows where prices sit below what the market pays and can carry more, and where they should be protected.
3. Differentiate by customer pricing power. Pricing Insight's Blackbird method scores each customer's pricing power from the business's own transaction data, and the increase is set to match. The accounts most able to resist are planned for rather than exempted by default.
4. Brief the customer face to face, with evidence. The account manager walks the customer through a short briefing built on published cost evidence: why prices are moving, what the supplier has already absorbed, what is changing and what stays the same.
5. Control exceptions and measure realisation. Exceptions are approved against a discount authority matrix with named approvers and thresholds. Announced, implemented and realised rates are reported monthly by customer tier and reconciled to a baseline Finance has signed.

What does the evidence show?

At a national distributor, cost-plus pricing was replaced across 18,000 SKUs. Gross margin on targeted SKUs rose by 800 basis points (bps), A$5.7m of earnings before interest and tax (EBIT) realised within 12 months, with 98.3% of customers retained and manual overrides down 35%. At the Asia Pacific business of a capital equipment manufacturer, a single dealing desk and discount limits by product took the business from an A$100,000 annual EBIT loss to an A$3m gain within 12 months.

Neither result came from a larger headline increase. Both came from differentiated prices and control over who could give them back.

Next step

Talk through your last price increase with Ron Wood: what was announced, what was realised, and where the difference went. Ron's number is +61 410 534 099.

Diagnostic figures are from the Pricing Insight cross-client register (eight diagnostics, 810 respondents, 4,721 comments) and cross-client statistics workbook (five diagnostics, 663 respondents, 2019 to 2025). Clients are identified by sector only. Case study results are as published by Pricing Insight.