What is a Special Pricing Agreement?
Buyers and sellers make a special pricing agreement (SPA) deal when the seller agrees to sell goods or services at a price different from the regular or list price.
This kind of deal is popular in business-to-business manufacturing. It’s usually made to get a big or strategically important order, build a long-term relationship, or enter a new market.
Here’s a breakdown of the critical characteristics of an SPA:
- Volume commitment: Most of the time, SPAs are tied to a commitment from the buyer to purchase a specific volume of goods or services. This guarantees business for the supplier and justifies the discounted pricing.
- Negotiated terms: These include the price, payment terms, delivery schedules, and other conditions (much like a standard agreement).
- Duration: SPAs are typically time-bound. Depending on the agreement, the period can range from a few months to several years.
- Customization: Each SPA is unique and tailored to the specific needs and circumstances of the parties involved. It reflects the purchasing power and the willingness to offer discounts for certain benefits, like bulk orders or market exposure.
- Confidentiality: The nature of SPAs requires them to be confidential. They may contain competitive prices, but neither party wants to be publicly known.
- Legal compliance: antitrust laws that prevent price-fixing and other unfair trade practices may apply to SPAs, so drafting them requires legal oversight
SPAs allow businesses to quickly and easily change how they buy and sell things. They help them respond to changes in the market, build stronger business relationships, and set prices that are the most profitable.
Synonyms
- Special pricing
- Special pricing collaboration
- SPA
How do agreements for special prices work?
For a special pricing agreement to work, the buyer and the seller must first discuss things and come to an understanding.
In short, here’s how the process works:
Figure out the chance.
In this case, either the buyer needs a lot of goods or services and wants a better deal, or the supplier sees a chance with a particular buyer (like a big company or a key player in a new market) and offers a discount to get their business.
A salesperson usually knows a lot about the possible buyer, including what they like to buy and how much power they have. Because of those sales talks, they’ve found a better deal that might be possible (or realized they need to make one).
Or, a valuable customer may tell the seller what they need right away, which makes them more likely to offer a discount or price break.
It’s usually easy to see the change in either case.
Talk about the terms.
The two sides start to talk about a contract. Talks about the number of goods or services to be supplied, the exact price, the length of the agreement, and any other terms and conditions are part of the bargaining process.
At this step, essential things to think about are the buyer’s needs, their ability to buy and how sensitive they are to price; the supplier’s production capabilities and costs; the buyer’s willingness to commit (to a minimum volume or other conditions); and the supplier’s importance to the sale.
Write up the deal.
An official SPA will be written once both sides agree. In this paper, all the details are laid out:
- The goods or services that were included
- The special price that was agreed upon
- The minimum buy-in requirements
- The length of time the deal lasts
- Penalties and clauses for not following through;
The draft still needs to be approved because it could involve the businesses’ legal, financial, and other departments.
Read the deal over and sign it.
The deal needs to be looked over by either a member of your legal team or a different lawyer to make it fair, legal, and enforceable. Both people sign off on the final document if no changes need to be made and everyone agrees to the rules.
Do it and keep an eye on it.
After ensuring everything is okay, the provider gives the goods or services according to the terms of the SPA. After that, they’ll compare purchases to promises to make sure they’re kept and handle disagreements.
Please talk about the deal again or end it.
As the end date of the SPA draws near, the parties may decide to renegotiate the terms for an extension or make changes to the agreement based on new information. They will end the relationship if the SPA no longer meets their needs.
Why special pricing agreements are useful
Getting important or prominent customers
One person can be significant to a business. For example, a big store might buy so many items that the seller is ready to sell them for less than their competitors.
For some customers, the supplier is also ready to offer a special price on their goods or services because they could help them grow into new markets or make other big deals.
In this way, every business has some special deal with its most significant users regarding prices.
Getting to Know Your Customers Better
These deals can make channel partners more loyal. If a distributor is given a special price that can’t be found with other supply partners, they have less of a reason to switch to a. That’s one way to lower your churn rate if you care about keeping people.
This is especially important if a big part of your business comes from one customer. If you can’t afford to lose them, offering them money to stay might be brilliant.
Trying to get more oversized orders
Most people know that you have more pricing options when you place a larger order. But sometimes, it’s hard to sell more like you’re trying to get into a new market or get people excited about a new product.
Because of this, suppliers will often try to get more oversized orders by giving special deals that lower the cost per unit. This method works well for producers because it helps them save money by buying in bulk and lowering the cost per unit.
Making sure we stay competitive
If other companies sell a product like yours, they probably already give their best customers a discount. They might even give deals to businesses that buy certain items yearly. It’s sometimes worth losing some of your profit to get a more significant part of the market. If your rivals are already doing this, it will be hard for you to compete if don’ton’t offer the same deals.
Inventory That Moves Slowly
Suppliers will sometimes offer special price deals to get rid of extra stock. This approach works exceptionally well for seasonal items or items that are hard to sell without a significant discount.
Both parties benefit from the deal. The seller gets to free up room and make some money, and the buyer gets a good deal. In addition, it gives both sides a chance to build a stronger business relationship in the future.
Ability to be flexible in managing the supply chain
If one distribution channel is having trouble meeting its goals, suppliers can use special price deals to get people to buy from another channel. This plan helps keep sales even and the supply line running smoothly.
For instance, if an online store is having trouble selling items, the supplier might give them a lower price for a certain amount of time to get them to buy more. However, they might charge more than traditional shops to keep sales expectations in check.
The good and bad things about SPAs
Advantages of Deals on Special Prices
One of the best things about special pricing deals is that they improve things for everyone. By giving discounts, sellers can get more extensive sales, and buyers can save money.
- Along with these benefits, you can build better customer relationships, encourage channel partners to be loyal, keep more customers, and enter new markets.
- Keeping up with other sources to stay competitive
- Problems and dangers of agreements with special prices
- One problem and risk with special pricing deals is that they can be overly optimistic about discounts. Suppliers may give deals that thcan’tn’t keep up with in the long run, which costs them money.
- Trouble keeping track of compliance. It can be hard to keep track of purchases versus commitments, mainly if the deal covers more than one product or service.
- There is not much room for change. Because SPAs are long-term contracts, they can be troublesome if market conditions change and one party can’t keep their end of the deal.
- The chance of backlash. If people discover your prices, they might ask for deals like yours or get angry that they must pay the market price for the same item. Best Practices for Handling Special Pricing Agreements
Keeping an eye on and tracking
To make sure that purchases are followed, suppliers need to gather and examine information from several different sources, such as:
- The amount of inventory
- Deals that have already been made
- The buying experience of customers
Suppliers can use this information to see the differences between what customers should and are buying. Tracking purchases against promises also makes it possible to settle disagreements when they arise.
Making clear what is expected and what responsibility
Ensuring everyone knows what is expected of them and what their roles are is essential to managing special pricing agreements. Among these are:
- Setting clear deadlines for tracking compliance and resolving disputes
- Making it clear what a breach of the agreement is
- Making it clear what will happen if compliance isn’t met or the contract is terminated.
- Include termination or exit plans in those rules if either party needs to end the SPA early.
- They are talking about a special price deal; it’s essential to discuss and agree on good terms for both sides before signing a special pricing agreement. One of you will have to figure out what they can afford, and the other will have to decide what they’re willing to pay.
- Figure out the key performance indicators (KPIs) that will be used to measure success.
- Set goals and standards for KPIs. Set up a way to go to higher levels of management in case of disagreements or changes in the market.
Some customers may demand better terms than others based on their business needs. This makes negotiation somewhat subjective. You have to choose what is okay and weigh the risks that come with it.
Going over and updating agreements
Any agreement where people work together must be looked at and updated regularly to ensure it is suitable for everyone. If there ar. Reasons to change the contract, it is essen it to make changes that align with how the market works.
Review by the law
Every contract, even SPAs, should be carefully reviewed by a lawyer to ensure that all terms and conditions are transparent and protect both sides. If you don’t have your legal team, you must works with a third-party legal advisor to review the contract terms and settle them.
Taking care of data
Gather and look over information about how well your SPA is working. Among these are:
- Volume
- Revenue
- Profitability
- Levels of customer happiness
By keeping an eye on and analyzing this data, you can find trends, change your pricing strategy, and improve the deal.
System interaction is the most essential thing to think about here. Your CRM and financial tools (ERP, billing) need to be able to work with the contract management software you already have. If it doesn’t, you’ll only have partial or incomplete data to work with, which will mean making bad choices and, most likely, not following through on your contracts.
Technology to Help Run an SPA
Software for managing contracts
Software for managing contracts makes the process easier, from making a SPA to negotiating it, carrying it out, and ensuring that it follows. The following should be present in a suitable CMS:
- Contract templates that make it easy to make contracts quickly
- An interface that lets people work together
- Interactive contract builders
- Automated processes that make approvals happen faster
- Electronic signatures to make contract execution quick and easy
- Safekeeping for documents
- Data analytics to keep track of performance
Set up, price, and quote (CPQ)
CPQ software helps suppliers give customers accurate quotes by using set price rules. It speeds up the whole sales process and eliminates mistakes made by people, making it easier to offer special deals on prices.
CPQ can have built-in contract handling as DealHub does. In that case, you can use the same tool to make quotes and then turn them into special agreements.
Customer Relationship Management (CRM): CRM software helps you keep track of interactions, events, and questions customers have about your SPA. It also gives you information about how customers act and what they’ve bought in the past, which lets you ensure that your prices and special deals meet their needs.
