Contract pricing
Also called customer-specific pricing
Reviewed by Dasha ShakovVP Marketing, Proton
Updated
What is contract pricing?
Contract pricing is a set of fixed prices agreed with a specific customer for specific items over a set period, after a negotiation, bid, RFP or GPO deal. Contract prices override the distributor’s normal price matrix for that customer.
How it works
Contract pricing gives the customer predictable costs but carries risk for the distributor: if the supplier raises its cost during the contract, the margin on those items shrinks unless the contract allows price adjustments or the supplier offers price protection. Distributors often back large contracts with ship-and-debit agreements or chargebacks from manufacturers.
Contract pricing example
Six months into a two-year hospital contract covering 300 items, a glove manufacturer raises its price. The distributor keeps selling those gloves to the hospital at the contract price.
Related terms
- Price matrixA price matrix is an ERP table that sets prices by pairing customer groups with product groups and giving each pair a rule, such as a discount off list.
- Request for proposal (RFP)A request for proposal (RFP) is a formal document in which a buyer describes a need and invites suppliers to propose how they would meet it.
- Group purchasing organization (GPO)A group purchasing organization (GPO) is an organization that negotiates supply contracts for members that buy and use the products, such as hospitals.
- Ship and debitShip and debit is an arrangement in which a manufacturer lets a distributor sell to one customer or project below its normal cost, then repays the gap.
- Price protectionPrice protection is a supplier’s commitment that shields a distributor from a price change.
