Avoiding the Switching Trap: Why Chasing the Lowest Price Can Cost More
When switching supplier, the cheapest contract is often the most expensive mistake. Businesses that chase the lowest headline rate can end up paying far more in hidden charges, poor terms, and budget volatility. Here’s how to avoid the procurement trap.
Every business loves a deal. But in the energy market, focusing solely on unit rates is a dangerous game. For UK organisations spending £500k-£5M annually, energy procurement decisions can add or subtract millions from margins. Too often, chasing the “lowest price” blindsides buyers to the true total cost of ownership.
The switching trap explained
The switching trap happens when decision-makers select a supplier based only on the cheapest-looking quote. On paper, it looks like a win. In practice, it ignores:
- Hidden charges: Non-commodity costs, capacity charges, and reconciliation fees.
- Contract terms: Inflexible clauses, rollover risks, and punitive exit fees.
- Budget volatility: Fixed vs. flexible risk exposure, and how that impacts long-term spend.
The result? What seemed “cheapest” often turns out to be the costliest in the long run.
Why the cheapest isn’t always cheapest
Energy contracts are not commodities like office paper or printer ink. They’re complex financial agreements tied to market volatility, regulation, and consumption behaviour. Here are the key ways “cheap” contracts backfire:
- Unbudgeted cost leakage: Cheap unit rates often exclude distribution charges, standing charges, or network costs (learn more about cost leakage).
- Operational mismatch: A contract designed for steady demand penalises seasonal businesses with excess charges.
- Market risk: Flexible deals without governance expose you to price spikes, negating any initial savings.
- Supplier reliability: Low-cost suppliers may offer poor service or go bust, leaving you scrambling for alternatives.
What boards actually value
Boards don’t care about winning the “cheapest” contract. They care about:
- Budget stability: Predictable energy costs protect margins and support long-term planning.
- Governance: A strategy with documentation, audit trails, and risk statements.
- Risk control: Protection from extreme volatility and hidden exposure.
Procurement teams that deliver these outcomes gain board confidence even if the headline unit rate isn’t the absolute lowest.
How to avoid the trap
- Look beyond the unit rate: Compare total delivered cost, including non-commodity charges and penalties.
- Check contract terms: Identify rollover clauses, termination penalties, and reconciliation mechanisms.
- Align with demand: Match procurement strategy to consumption profile, seasonality, and operational needs.
- Model scenarios: Stress-test contracts against price surges, regulatory changes, and expansion plans (see MHHS impacts).
Final thought: price is not strategy
Chasing the lowest energy price may feel like a quick win, but it exposes your organisation to long-term risks and hidden costs. True procurement success comes from a strategy that delivers stability, governance, and resilience. In today’s volatile market, price is just one piece of the puzzle and often, not the most important one.
What’s next?
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