Benchmarking
The supplier says your price is in line with the market, and the only evidence offered is its own list price. You bring one company's buying power to the table. We bring the buying power, and the pricing insight, of hundreds of companies.
Book a conversationHow Benchmarking Works, and When It's Worth It
A benchmark compares what you pay, and often the service levels you get, with comparable services bought by others. Comparable means the same or materially similar in scope, volume and quality. Raw prices have to be adjusted before they compare, for volume, term, service levels, geography, contract terms and risk. A benchmark can cover terms clause by clause, not just price.
When it is worth it
- A long agreement whose prices were set years ago and may have drifted from the market.
- A renewal where a competitive bid isn't practical, and you need evidence for the price you ask for.
- An agreement with a benchmarking clause nobody has used.
- The only evidence that a price is fair is the supplier's own list price. A published price alone doesn't show that.
When it is not
In our judgment, skip the formal benchmark for:
- Small agreements, and commodity services with transparent public pricing, where a quick comparison or a competitive quote is enough.
- Services with nothing comparable on the market.
When a benchmark isn't worth the effort, that is what you will hear from us.
Where Comparisons Go Wrong
A benchmark is only as good as what it compares.
List price is not net price
A catalog price doesn't show that a price is fair, and published discount figures are measured from different starting points, so they can't be set against your current rate directly. Compare net prices on the same basis.
Like for like takes judgment
Adjusting for volume, term, service levels and risk is a professional judgment, and peer groups are often small. Treat a precise percentile with care.
Old prices go stale
Prices from deals done long ago, or under different terms, are not a fair comparison. Federal price analysis rules out prior prices after a significant lapse of time for the same reason.
Finish before the notice date
A benchmark that lands after the renewal notice date has lost its leverage. Start it early enough to use the result.
Your pricing may be confidential
Supplier agreements often treat your pricing and terms as confidential, and sharing them with an outside benchmarking consultant can put you in breach. Check for a carve-out for your advisors, or get the supplier's consent.
The supplier's data
A formal benchmark depends on the supplier's cooperation. Good clauses set deadlines for the data and consequences for delay.
Evidence You Can Take Into the Renewal
For IT and procurement leaders: terms that keep pace
- Service levels compared with the market, not only price.
- A benchmarking clause with a trigger and a remedy, so a result changes something.
- Your team doesn't build the comparison or chase the supplier for data. TREU brings the market view, and the benchmarking firm when your contract allows one.
For finance: a price you can defend
- Net prices compared on the same basis, not list price set against a discount.
- Results in hand before the renewal notice date, while they still carry leverage.
- A clause that says who pays the benchmarker, and whether the supplier pays more when its prices are out of line.
What to Watch For in a Benchmarking Clause
-
Who picks the benchmarker.
Name an independent benchmarker in the contract where you can, chosen and paid jointly, and limit the supplier's objections to reasonable grounds.
-
The comparison group, and the target.
Define who you are compared with, and make sure you see the reference group and the adjustments. Targets range from the peer average to the top quartile, and an unrealistic one invites a fight.
-
The trigger and the remedy.
Set the gap that triggers a change, what the supplier has to do and by when, and what happens if it refuses. A clause without a remedy leaves the result unenforced.
-
When a change takes effect.
Fix the date any price change takes effect, and whether it reaches back to the start of the review.
-
Who pays.
Agree how the benchmarker's fee is shared, and whether the supplier pays more when its prices are found out of line.
-
How often, and on what.
Allow reviews at regular intervals, often no more than once a year, and define which charges and services can be benchmarked.
-
Confidentiality that allows it.
At signature, carve out disclosure to your advisors and benchmarkers, and require them to keep the data confidential.
This list is a starting point for your review. TREU is not a law firm. Your counsel gives the legal advice.
How TREU Tests a Price Against the Market
See how we work-
Supplier identification
We gather your agreements, prices, terms and any benchmarking clauses, and find where comparable agreements may look different.
-
Buying cycle
We put prices on the same basis, test the market where competition is practical, and bring our pricing insight to the renegotiation with your legal team.
-
Implementation oversight and accountability
We hold the supplier to the new prices and terms, and check the first invoice against them.
-
Client and supplier lifecycle management
At each business review and renewal, we revisit your prices and terms with you, so what you agreed doesn't quietly drift from the market.
Questions Buyers Ask About Benchmarking
What is a benchmarking clause?
A term in a long agreement that lets you compare the supplier's prices, and often its service levels, with the market during the term, and can require a change if they are out of line.
Who chooses and pays the benchmarker?
The contract decides. Good clauses name an independent benchmarker, chosen and paid jointly, and limit the supplier's objections to reasonable grounds.
How are agreements compared like for like?
Prices are adjusted for differences in volume, term, service levels, geography, contract terms and risk, so that you compare services that are the same or materially similar.
What happens if our price is above the benchmark?
That depends on the clause. A good one sets the gap that triggers a change, what the supplier has to do and by when, and what happens if it refuses.
Can we share our pricing with an advisor?
It depends on your agreement. Many supplier contracts treat pricing as confidential, so check for a carve-out for advisors or get the supplier's consent. Your legal team should decide.
Will you share our prices with other clients or suppliers?
No. We never disclose one client's prices or terms to another client or to a supplier. What we learn across hundreds of companies shapes our advice only in aggregate, never by name.
Do you run formal benchmarks?
No. When your contract allows a formal benchmark, we arrange an independent benchmarking firm. It runs the benchmark; we help you use the result in the negotiation.
Our agreement has no benchmarking clause. What can we do?
Use the renewal. Test the market where competition is practical, and negotiate a benchmarking clause into the next term.