Every wholesaler knows the email. Somewhere in November or January it arrives from the carrier, the warehouse management software vendor or the landlord: in accordance with clause 7.2 of the agreement, rates will be adjusted by 3.1% with effect from 1 January. No quote is attached and no meeting is requested. It is a notification, not a proposal.
In most companies that email is forwarded to finance and that is where it ends. Which is understandable. Three percent sounds modest, the clause was signed years ago, and there is plenty else going on that week. But in wholesale and distribution that percentage lands differently than it does in sectors with room to absorb it.
The arithmetic nobody runs
Take a distribution business with 8 million euro in revenue and a net margin of 2%. That is 160,000 euro of profit a year.
Leave the cost of goods out of it. Price increases on your trading stock you can generally pass on to your customers, because passing them on is the business model.
What you do not pass on are your fixed contracts. Transport, warehouse lease, software licences, energy, packaging, forklift leasing, cleaning, insurance. For a distributor of this size, 1.2 million euro a year across those contracts is unremarkable, not least because transport alone often accounts for four to six percent of revenue.
Index that 1.2 million by 3% and it costs 36,000 euro. Against 160,000 euro of profit, that is 22.5%. Close to a quarter of the year's profit, given away by email, in a week when nobody had time to look.
And that is year one. Indexation compounds, because each increase is calculated on the already increased rate:
| Year | Annual cost | Increase vs. starting year |
|---|---|---|
| Start | 1,200,000 | - |
| Year 1 | 1,236,000 | 36,000 |
| Year 2 | 1,273,080 | 73,080 |
| Year 3 | 1,311,272 | 111,272 |
By year three you are 111,000 euro a year worse off, which is 70% of the profit you started with. Your own revenue and selling prices move too, of course, so it rarely plays out that starkly. But moving your selling prices takes a negotiation with each customer, while this cost increase happens on its own. That difference in friction is exactly why one side of the balance rises faster than the other.
For context, World Commerce & Contracting found that organisations lose an average of 9.2% of annual revenue to poor contract management (WorldCC, August 2025). In a sector where the net margin itself is two to five percent, you only need to touch a fraction of that 9.2% to halve your result.
The clause almost always moves one way
Open any price indexation clause in your own contract folder and check four things. Together they determine what the clause actually costs you.
Which index. The national consumer price index is the most common choice, but suppliers in transport, technical services and cleaning often use sectoral wage indices that rise faster. That is defensible when their cost base really is wages. It becomes odd when a supplier picks whichever index moves in its favour without any link to what it actually spends.
Which measurement moment. Many clauses name a specific month, say the October figure. When inflation is volatile, the difference between a single month and a twelve month average is easily a full percentage point. An average is almost always fairer than one peak month.
What happens when the index falls. This is where the asymmetry sits. The standard wording says the supplier "may adjust" prices when the index rises. What happens when it falls is simply not addressed. Several sub-indices fell in 2015 and in 2020, and almost no supplier issued a credit note unprompted. Two way wording, along the lines of "prices shall be adjusted in line with the movement of the index, whether upward or downward", costs you very little in negotiation and fixes this.
What you may do if you disagree. Some clauses give you a right of early termination when the increase exceeds a stated percentage. That is the single most powerful thing you can negotiate into the clause, because it turns a notification back into a conversation.
What to negotiate instead
Refusing indexation is not realistic. Suppliers are entitled to it and will always want it in, and a contract without any indexation is only available at a higher starting price. The gain is in the boundaries, not the principle.
Four terms do most of the work, and all four are routinely negotiable at renewal:
- A cap. "The adjustment shall not exceed 4% in any year." This is the term that saves you in an inflation spike and costs you nothing in a quiet year.
- A floor. No indexation below 1%. It saves both parties administration and removes the increases nobody ever verifies.
- Symmetry. The index works in both directions.
- An index that fits the supplier's cost base. Fuel and wage weighted for a carrier, not for a software vendor.
At the top of your portfolio you can go further. On your three or four largest contracts, a benchmarking clause is worth more than any cap: it obliges both parties to test periodically whether the rate is still in line with the market, regardless of what the index did. On a multi-year contract of three years or more it belongs in there as a matter of course. And if indexation runs so far that the contract becomes untenable, the hardship clause is your safety net.
The concrete wording is in our price indexation clause template. If a conversation is coming up, the step by step guide to renegotiating covers the preparation.
For existing contracts you can no longer change, one route stays open: requesting a price revision on the basis of changed circumstances. That rarely succeeds on the clause alone, but it does when volume or scope has genuinely shifted as well.
The real problem is that nobody checks
Most indexation increases are not accepted after consideration. They are accepted because they go unnoticed. Loio found that 71% of contracts are never checked for compliance or deviations after signing (Loio, Contract Management Statistics & Trends 2026). For indexation that means something very specific: nobody puts the announced 3.1% next to the index figure the contract actually refers to.
That is worth doing, because the two regularly fail to match. A supplier quoting the figure for a different month, applying two years of increases in one go, or indexing a rate that was already raised outside the clause last year: it happens more often than you would expect, and it is almost never corrected, because nobody lays the two side by side.
In wholesale there is a second layer on top. If you run multiple branches or warehouses, they often buy from the same suppliers on different terms. The Hackett Group calculated that 10 to 20% of intended procurement savings are lost to purchasing outside existing contracts, and maverick buying makes central indexation control impossible: you do not know which contract was supposed to apply. A framework agreement with one indexation term covering every branch resolves that in a single step.
What you need for this is not a system but a list. Per contract: the supplier, which index applies, which measurement moment, whether there is a cap, and the date the increase is announced. Once that sits in your contract register, the indexation email stops being a notification and becomes a thirty second check.
Why this pays better than another buying round
Attention in wholesale goes almost entirely to the purchase price of trading stock, and reasonably so, because that is where the volume is. But Bain & Company found that external procurement accounts for an average of 43% of total business costs, and the part of that which is not trading stock rarely gets the same scrutiny. McKinsey found that organisations in the top quartile of procurement maturity achieve an EBITDA margin at least five percentage points above the rest (McKinsey, 2024). That gap does not come from harder bargaining on trading stock. It comes from the contracts around it, where the amounts are smaller and the attention is therefore lower.
More on the contract issues specific to this sector, from consignment stock to volume discounts, is on our page about contract management for wholesale and distribution.
Start small. Take your five largest fixed contracts, find the indexation clause in each, and note which index applies, whether there is a cap, and when the announcement lands. That takes an hour. The next time a rate adjustment arrives, you will know within a minute whether it is correct, and whether you have something to say back.