Five key points to remember before you ask
Of the many ways to cut business costs, vendor negotiation can be one of the simplest and quickest paths to improve cash flow. And it’s often overlooked.
Sometimes a simple email to your sales rep asking if a lower price is available can yield instant savings. More often though, that email marks the beginning of a discussion that, if handled smartly, can deepen a relationship and save you money.
Set a positive tone
Enter your negotiations with optimism, and you will increase the chances of having a productive and respectful discussion that ultimately allows everyone to get what they want.
Present alternatives instead of demands. If the vendor makes an unreasonable request or rejects your suggestions out of hand, take a breath and put yourself in their shoes before responding. And don’t be afraid to leverage your value to them, which is essentially composed of your spend, the demand for what you’re buying, and your reliability in making payments.
Remember: If you consistently purchase from them and pay on time, you’re far more valuable than some of their clients who don’t.
Aim high, with the expectation you’ll need to settle for less. This leaves you room to bargain and to keep that positive outlook. But do bargain. It’s rare that a first offer is good enough to be accepted immediately – though it does happen.
Do your homework
Preparation is key to a successful vendor negotiation.
Your first task is to look inward. What does your business need – now and in the future – and how can this vendor help you get there? Where can you change to cut costs and where are the pain points?
Make a list and put your needs in order of priority. Whether it’s simply asking for …
- A longer payment window to improve cash flow;
- a volume discount;
- a price cut if you bundle additional purchases;
- or simply negotiating a deal in which they get paid when you do …
… consider a strategy that makes sense. You can’t have everything, so identify what’s crucial and what you can live without.
Next, know your vendor. Look at their past deals, reach out to current and former clients to compare notes, and try to project what fits. Also, make sure to know their negotiator. It will be a very different conversation if their President is in the room versus an Assistant Manager of No Authority to Make Decisions.
Finally, remember to bring your history with a vendor to the table. Have you been a stellar client with an impeccable record of payment? How much money has your company spent with them over the years? Leverage that relationship into wiggle room when you need it – or better terms in the long run.
Know your value
While it may seem at first like you have a weak position and need a concession from the vendor, dig a little deeper and you will likely find plenty of value to offer them. Consider the following options:
- Go all in. Offer to sign a long-term agreement in exchange for better pricing.
- Consolidate purchase orders. Pull them together from across the company to create larger orders. Become that bigger client that they always wanted.
- Up the ante. Can you put more on the table? Are there products you obtain elsewhere that you could instead purchase from them?
- Introduce them to your friends. Are there other markets into which the vendor could expand with the help of your introduction? A little networking could go a long way and serve both of your interests.
Very few vendors or products are irreplaceable. If negotiations are unproductive and your proposals fall on deaf ears, you may need to pursue a life without them.
Look at any of their fierce competitors, and pit the vendors against each other. Consider suppliers in an “adjacent market” (e.g., a nearby region or similar industry) and pitch them a deal on your terms. They may see great opportunity in a potentially untapped arena and be willing to cut a favorable deal to get their foot in the door.
Many times, the threat of replacement will be enough to shift the power dynamic and bring the vendor around to your way of thinking. But if it doesn’t, make sure you are prepared if they call your bluff.
You both want the same thing
In the end, your company’s needs are similar to those of your vendors: Increase profits, reduce costs, and grow with enough cash flow and confidence. Come to the table with that in mind and leverage your value to the vendor, and you increase the chances of negotiating a better deal.
Profit Point Consulting’s mission is to accelerate the growth of small and medium-sized companies through sound, strategic advice, and proactive financial management. If you need a trusted advisor to help develop and execute your vision, call us at (973) 659-1430 or fill out our contact form.