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The commodity market is ever-changing and in business predictions are key to securing profitability. When the cost of raw materials fluctuates manufacturing can quickly eat into profit margins and smaller companies can quickly turn south. There are some basic tips to building a safety net against the fluctuations in the commodity market.
Planning for eventual ups and downs is the best step you can take to dealing with commodities. By adding in a sliding scale for prices into your contracts, the changing costs of raw materials can be accounted for up to a predictable swing. If this method is taken, communicate with your clients that the prices are tied to the commodities used in your manufacturing. Stress that prices could go down just as much as go up to assuage any feelings of unfairness.
Another method to prepare for price changes is to build in prices of commodities higher than the predicted price. If you find that the market has shifted downwards you can offer a “discount,” yet if an increase occurs there is no change.
Click here for the full article by Tommy Wyher from Business.com.