In the current economic climate, businesses everywhere are looking for ways to save money and tighten up their budget.
One way to do this is to negotiate contracts with your vendors. Suppliers and service providers are often open to negotiating their "standard" prices if you ask, and doing so can help your business get the best deal possible on goods and services.
Starting the conversation
Knowing how to approach your vendors is key to having a successful negotiation. First, check in with them to see how their business is doing and if they're open to a contract negotiation. If they are, you'll need to understand how to frame the conversation in a way that benefits both of your bottom lines.
"Money is a language, and people will only do business with people who can speak money fluently," said Ayesha Holloman, founder of Outdoorish. "You have to establish trust and credibility, as this will determine the terms of your partnership and favorable rates."
Before you begin the conversation, David Vranicar, managing partner and founder of FBS Fortified & Ballistic Security, recommends preparing a checklist of what you want from the negotiation.
"[Have] a checklist of criteria you're expecting, wanting and needing from the vendor," Vranicar told CO—. "This makes everything plain and gets the gears turning in the head of the prospective vendor. Asking if there's any wiggle room on that list as far as pricing and that it would be appreciated is a polite, direct and visual way of getting that conversation going."
[Read: Guide to Negotiating Payment Terms With Your Vendors]
Questions to ask
Asking specific questions during vendor negotiations will help you clearly communicate your intentions and understand your vendor’s position. Our expert sources recommend asking the following:
- What is the length of our current agreement?
- What is the minimum purchase quantity requirement?
- What is your order processing time?
- How many shipping methods do you have?
- Are you a national distributor?
- Who are some of your other clients and what are the terms of their current contracts?
You have to establish trust and credibility, as this will determine the terms of your partnership and favorable rates.
Ayesha Holloman, founder, Outdoorish
Tips for a successful negotiation
Follow these four tips for a smooth negotiation process:
Do your research beforehand
Research your vendor, their industry and how the current economy has been affecting their business. This way, you'll have a better understanding of what their position is and how they might be able to alter your contracts.
"Ground yourself with market knowledge of what competing vendors charge and what businesses similar to yours pay for comparable services," said Andy Diamond, president of Angry Crab Shack. "When you have this knowledge, the conversation shifts to a more productive discussion, rather than you asking questions, and you'll likely have a better chance of locking in the terms you're looking for."
[Read: A Quick Guide to Accounts Payable]
Be flexible with what a 'win-win' looks like
Most negotiations won't result in both sides getting everything they want, exactly how they want it, so be prepared to compromise.
"'Win-win' deals are kind of a misnomer," said Holloman. "Both entities can make concessions in a win-win bargain so that each party gets some level of profit. Win-win negotiations take a long-term approach in a relationship-based environment, with an equilibrium of achievement and success for both ends over a period of time."
Aim for honesty and transparency
You do yourself, your business and your vendor partners a disservice when you aren't open and transparent during negotiations. Eric Kardon, director of operations at Angry Crab Shack, emphasized that both sides need to be fully honest in these discussions.
"Transparency works best in leveling with a vendor and letting them know where you stand and your needs," Kardon said. "If you want to have a longstanding business relationship, then compromising is a must. Extending the contract longer than you initially wanted in order to get your terms is a common compromise. Just remember, in any negotiation if one side feels they did not get a good deal, then it's less likely more deals will happen in the future."
Be prepared to walk away and keep searching
You may not be able to get what you want out of negotiations, and that's OK. You may have to walk away and find a different vendor to partner with.
"Not every opportunity is for you," said Vranicar. "Not securing a deal isn't a failure, it might just not be the right time for it, or even unconsciously one party might realize it's not a fit even though neither of you can quantify why. Keep yourself on their radar and watch for opportunities, or reapproach them when you're able to better meet terms."
[Read: Daymond John's 'Powershift' Explores Taking Control Before, During and After Negotiations]
CO— aims to bring you inspiration from leading respected experts. However, before making any business decision, you should consult a professional who can advise you based on your individual situation.
Want to read more? Be sure to follow us on LinkedIn!
CO—is committed to helping you start, run and grow your small business. Learn more about the benefits of small business membership in the U.S. Chamber of Commerce, here.
