Negotiating with Vendors
4 Tips for Business Owners
by Mark Henricks
Negotiating with vendors offers the most opportunity to make more money with less investment of time and effort than almost any other business activity. Simply asking the supplier whether the price is the lowest available can result in immediate and ongoing savings that have a dramatic long-term impact on profits and cash flow.
Of course, it's not always that easy. Negotiating with vendors can be challenging and intimidating for business owners. But with these tips in mind, a business owner can enter into negotiating with vendors fairly confident of coming out better than before, if not getting everything they've asked for.
Preparation Is Essential, So Be Prepared
The U.S. Small Business Administration suggests that success in negotiation is 90 percent preparation and just 10 percent bargaining ability. Start by knowing exactly what your business needs, whether it's a lower price, better terms, or faster delivery. List desired outcomes in priority order so you know what you have to have, as well as what you can bargain away. Also, know the other side, including both the company and the person with whom you're dealing. Understand the costs and other pressures that's driving the other side's positions as much as possible.
Start by setting the tone of your negotiations. If you want a respectful, informative, and productive session, take the initiative by getting things underway in that manner. Rather than make demands, offer alternatives. When negotiating, ask for more than you need or expect to get, so you'll have room to bargain without having to settle for something unacceptable. And don't be too quick to agree to any offer—popular wisdom suggests that you should rarely (if ever) accept the first offer.
Offer Something of Value
Since you studied the other side, you know what they want and need. Think of ways to offer a benefit they will find attractive but won't cost you much. For example, you may be willing to sign a long-term purchase contract in exchange for a discount. Or you could offer to consolidate purchase orders from different parts of the company to make larger orders. Other possibilities include offering to buy things from this vendor that you're currently sourcing elsewhere, or providing the vendor with an introduction to other markets. And be sure to get something in return for your concessions.
Be Ready to Stall and Walk Away
Even if a supplier seems irreplaceable, you may be able to convince another supplier to sell you the same item, or even begin producing it yourself. If the supplier is that important and you can't make a deal, consider stalling. State that you can't make the decision on your own and will have to consult your staff. Then rejoin the negotiations at a later date with better information in hopes of making a deal. But don't be afraid to walk away completely if you can't negotiate a deal that is favorable to you—the concessions you'd have to make may not be worth it.
Some negotiations are unexpectedly easy and successful, but generally speaking, they are tricky and not always completely satisfying. However, the power that negotiating can have on business profitability makes it a vital skill to study and master to the best of your ability.
About This Author
Mark Henricks is a freelance journalist covering business, entrepreneurship, technology, personal finance, health and fitness for leading publications.
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Important Legal Disclosures and Information
Negotiating: How to Get a Better Deal for Your Business: https://www.sba.gov/content/negotiating-how-get-better-deal-your-business
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