Business Basics
How to negotiate with vendors effectively

How to negotiate with vendors effectively

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Running a small business means finding the most effective ways to source your supplies and services for maximum revenue. Small businesses may lack the deep pockets and extensive resources of a large operation, but you make up for it with ingenuity, agility, and the personal touch of a dedicated owner. One of the ways to give your business an edge is to learn the art of negotiating with vendors.

Negotiation skills go hand in hand with strong business acumen. In fact, negotiation skills can benefit you beyond the workplace, into your personal life and relationships. According to Forbes, “Mastering the art of negotiation will translate in all areas of your life. Continuing to refine your ability to create deals that bring value will also help to maintain and grow relationships.”

Learn how to protect against vendor overages with virtual cards.

Why you should negotiate with vendors

It is quite rare that prices are set in stone, and through skilled negotiation you can find a more desirable agreement. Negotiating prices can have exponential effects on your business, since better prices on ever-growing orders over longer periods of time can mean a massive reduction in cost for you.

It’s not just about price. Negotiating with vendors could help you improve an overall vendor contract. The negotiation process can help you understand the needs of each party and determine a contract that benefits both sides of the transaction. From interest to length of contract to payment terms, your vendor contract is made of many facets that can be negotiated. You can negotiate with potential suppliers as well as existing vendor contracts, so think outside the box.

Suppliers, vendors, retailers—you can use these terms interchangeably to refer to the business you work with to get what you need.

You may not be able to control your revenue or easily drum up new business, but you can increase your profit margin by decreasing your variable costs each month. A successful negotiation with a vendor can do that, while also helping you better assess your business needs and strengthening your supplier relationships.

11 tips for negotiating with vendors

1. Build a foundation of communication

Without clear and trustworthy communication you’ll never get anywhere. Take the time to mindfully commit to the conversation, and speak in person whenever possible. Do your best to respond to communications in a timely manner, and show respect by saving communication for appropriate times. Consider a single point of contact for the vendor, so it’s always the same person reaching out and getting to know one another. When there are issues, give your full attention to solving the problems and establishing trust. If a vendor sends mass emails about prices or services, it is unlikely they are open to negotiation so look for vendors with a personal touch in communication.

2. Research pricing

Nothing will spoil negotiations faster than asking for a price at or below their wholesale cost. It is critical that you research what the wholesale cost (including transportation, packaging, etc.) might be so you understand how much flexibility your supplier will have with pricing. You will also need to understand variance in quality, since most vendors will try to justify higher prices with better quality. For most vendors, it’s cheaper to keep existing customers and more expensive to find new business. If a vendor is worried they might lose you, this could be used as leverage as they may be more willing to whittle down prices. Understanding what existing vs. new business costs them can aid in negotiation.

3. Learn from them

Treat your vendors like the industry experts they are, and ask them to help you learn more about your field. Not only will you better understand your industry, but you’ll earn their respect. Do your best to understand where they are coming from and the issues they face in the industry. Vendors want to work with well-informed business owners that will run their companies successfully over the long term. Demonstrate that you want to stay on the cutting edge of industry development and learn the details of the business and you’ll demonstrate that you’re a company smart enough for partnership.

4. Sell the vendor

Your vendor wants to be well-represented and sell as much of their product as possible. Demonstrate to the vendor how you can help them meet their goals and increase their sales. Will you get their product in front of key demographics? Is your sales team world-class? Maybe you can find ways to promote the vendor in your operations. Sell your operation to the vendor and they’ll be excited to work with you (and be open to negotiations).

5. Get quotes

Even if you know which vendor you’d prefer, always get multiple offers from potential vendors. Competition is key for driving down pricing and increasing the customer service of your vendor. Consider not only other products, but getting your own wholesale with transport and packaging (or any other steps the vendor would complete). Don’t forget to get quotes for different quantities or tiers. The entire process of procurement is negotiable and presents multiple touch points for improvement and innovation.

6. Try a different angle

It may be that your vendor is unable or unwilling to negotiate price. That doesn’t mean the contract negotiation is over! Try finding other areas where you can make a better deal, perhaps the down payment, interest, repayment terms and length, discounts in bulk, or other factors. You may be able to transfer all of your business to this single vendor, or bring in other business for them, such as another company in your building. You may not get a lower price, but you can improve your cash flow for maximum effect.

7. Talk to customers

If you want to establish a relationship with a supplier that will include the perks of price negotiation, it’s a good idea to talk to their current customers. Ask the supplier for a list of client references and then reach out to them. You can determine if they’re a reliable vendor and also come armed with the prices their existing customers are paying. The payment terms offered to these customers may give you a jumping off point for your negotiations.

8. Lead with a deposit

The vendor is the one taking a risk, and what they truly want is to get paid. If a vendor feels confident in your payment, they’ll be more willing to negotiate prices. Therefore, offering up a large deposit or down payment on an order can encourage the vendor to give you a better price.

9. Don’t get desperate

It’s a general rule of thumb that the “winner” is usually the party who wants it the least, because the party who wants it the most is more willing to bend. When you’re ready to negotiate, have a Plan B and even a Plan C for other vendors. Stay confident and remember that you can always walk away. Typically it’s not a good idea to take the first offer—carefully consider and respond with a better counter offer. It’s also important to leave plenty of time for negotiations and don’t rush through.

10. Be partners

A truly successful relationship between you and your vendors will look more like a partnership, not like an order fulfillment chore. Figure out what will make your vendor’s life easier—how can you save them money or time? Offer your supplier something that is mutually beneficial and treat the relationship like a long term partnership. Consider what other services and perks you could offer them beyond your business order. In a partnership, you may log months or even years together, so know when to back off and let them “win” for the time being.

11. Start strong

Vendors are not likely to negotiate with a company who has missed a deadline or made late payments. Similarly, vendors don’t want clients who are overly complicated or difficult to work with. By making your payments in full and on time you begin to build trust. Communicate promptly, treat all points of contact with respect, and represent yourself as the type of client they want to retain.

Negotiation is a skill that can benefit business owners every single day, whether they’re dealing with vendors or landlords, employees or clients. While we’re outlining some of the most effective basics here, you may wish to pursue a deeper study by reading Never Split the Difference by Chris Voss or Getting to Yes by Roger Fisher & William Ury.  Learning this art of vendor negotiation takes practice and careful research, but can spell huge gains for a fledgling business. Build your profits and relationships as you negotiate prices with vendors.

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The information provided on this page does not, and is not intended to constitute legal or financial advice and is for general informational purposes only. The content is provided "as-is"; no representations are made that the content is error free.