4 Methods How to Negotiate With Suppliers For Small Business

(doylc.com) How to Negotiate With Suppliers For Small Business - To be competitive as a small business, you need to be able to obtain your supplies and materials at the lowest prices available. This will mean negotiating with your suppliers. In some cases, prices are set and there is very little that you can do about it. However, if you are familiar with some basic negotiating tactics and are well-informed in the subject area of ​​your business, you can add some leverage and make the best deals possible.

• Preparing for Negotiations

Shopping spree. Before entering into negotiations with a particular supplier, you should know your alternatives. Get price and availability quotes from multiple vendors. It would be pointless to enter into negotiations with a supplier if the requirements you set are not appropriate to the industry standard.

You can tell your supplier that you've done your homework. In your negotiations, you might even say, "I've compared prices with X, Y, and Z suppliers and I'm willing to choose the lowest price. For now, that's X unless you want to match or undercut him."

Study the competition. Especially when you are dealing with a limited commodity that only a few vendors can offer, you need to know the industry. You should research the companies involved in this type of business and know their relative strengths and weaknesses. Get copies of annual reports from the Secretary of State, look at marketing brochures or peruse their sales catalogs for information. You can use the following information to negotiate better deals for yourself:

Other companies offering the same product.

Prices offered by your supplier's competitors.

Deviations in product delivery.

Variable payment terms.

The relative market strength of your supplier and its competitors.

Understand the business. Talk to different suppliers and learn about their concerns and business practices. The more you know their needs, the more you can offer them and offer in a negotiation session. Additionally, if you sound knowledgeable when you talk about the business, you'll add credibility to your arguments and likely get a better deal.

Use your negotiating position with the supplier. As part of understanding the market, you should know if you are an important part of your supplier's business. If the business the supplier gets from you is a significant part of their income, then you're in a much better bargaining position. On the other hand, if your business is only a small part of their business, you may need to adopt a softer negotiating position.

Use the roughly 10% limit to measure the role you play in your supplier's business. If you're providing more than 10% of your revenue, you can afford to be more demanding.

• Supplier assurance that your business is valuable

Show that you serve new or growing markets. If you can demonstrate to your potential supplier that your company's needs represent a new or untapped market, the supplier may be interested in lowering their prices to win your business. Suppose a paper company has worked primarily with commercial offices, but you represent a school district. The supplier may be happy to get the school district's business and may offer you a deal.

Show that you have a stable income. A contract is not valuable to a supplier if it has to expend significant effort or resources to collect it. When negotiating a better deal, reassure the supplier that you are a strong company and that you will pay your bills on time. If you can show a good credit history or even provide statements from other suppliers you deal with, it can go a long way in helping you get a better deal.

Offer the security of a long-term contract. Suppliers want to know that they will have a stable market for their product for some time. If you can commit to a long-term contract, the supplier may be willing to lower their prices to increase their level of security.

Be careful not to get locked into a contract for too long, especially when trading in a volatile market or commodity. If prices or technology are changing rapidly in your field, you may be doing yourself a disservice by tying yourself into a long deal.

Emphasize areas of shared strength. When negotiating with the supplier, point out all the possibilities that a strong deal will be a "win-win" situation for both companies. For example, you may be able to pay a higher price if you can show the supplier that you can both work together to maximize supplies. For example, if your business consists of multiple branches, you might be able to consolidate your order to simulate a bulk purchase. This could lower the cost of delivery for the supplier in exchange for better service to your business.

• Allow flexibility

Accept changes in delivery. If you can accommodate certain terms for the supplier, you may be able to negotiate better prices for yourself. For example, ordering in bulk and then dealing with storage in your facility will generally result in better prices.

Consider alternative payment terms. Negotiating a better overall deal can involve more than just price. On your end, you may charge a lower price for the product you need, but the supplier may have other interests. If you can offer (and ensure) shorter payment terms than usual, you may be able to reduce costs. For example, instead of paying in 30 days, you could get the supplier to lower their price if you can pay in 15 days. Alternatively, it may be that your business would benefit from a longer payment term, which could improve your cash flow and reduce the need for additional capital.

Take your time. The best negotiations don't happen on a strict schedule. If you're trying to improve the price you pay for certain supplies, you could start with simply hinting over time. You could then later enter a formal negotiation session where you might resolve some issues but not get the price you want. However, keep the topic alive. After some time you can convince the supplier to come to your position.

Allow changes in your vision of the contract. You can start negotiations with an idea of ​​the “perfect” contract. However, if you stick to it, you can lose the deal entirely. You must be willing to give up minor terms in order to acquire the major ones.

For example, if price is your main concern, you may be able to give up some delivery terms to get a lower price.

• Take a hard line if necessary

Resist unilateral price increases. If you have been buying from a supplier for a long time, the supplier may tell you that the price of the product will increase with the next delivery, for example. The supplier may advise you that this is just a fact of doing business and recommend that you pass the increase on to your customers. Evaluate the market and consider whether the price increase is reasonable, but don't feel that you have to accept such a unilateral increase.

This does not apply to an existing contract. If you have a contract, the provider cannot unilaterally increase the price.

Be ready to walk away. A principle of successful negotiations is to “want it least”. That is, showing the other party that you don't have to make that deal, and that you're willing to walk away if you don't get the price or terms you're asking for.

Of course, if you take that position, you need to back it up and turn to an alternative supplier. Make sure you have an alternative available before taking a hard line.

Cancel existing orders. If you have placed orders with the supplier that have not yet been fulfilled at the time of your negotiations, you can use them as leverage. The supplier sees them as sales that disappear when you threaten to cancel. This can be a very powerful tool. However, consider any penalties or restrictions related to order cancellations before considering this as a viable option.

Have the data ready when you start negotiating. Hold it until you need to take a strong stance. Threatening to cancel orders is the kind of move that could end your business relationship together.

In extreme circumstances, threaten litigation. Depending on the nature of the product or service, there may be regulations that limit price increases or market control. If you think such rules might apply to you, use that to your advantage. Let the supplier know that you are aware of the law and that you will take legal action, if necessary, in order to obtain the desired price or services.

For example, if there is relatively little competition for the service or product in question, you could team up with other customers and threaten antitrust lawsuits in court. Before taking such a position, you should seek legal advice and be sure of the laws on the subject.