How to Negotiate a Good Value Purchase From a Supplier
Negotiating with suppliers is tricky, you need what they're offering but you also want value. Read our guide and ensure a good deal
The process of purchasing from a supplier can be a complex one. Especially if you are dealing with a supplier for the first time, it can be difficult to know what a good deal looks like, putting you at a disadvantage in negotiations.
This article will help you with the all-important process of negotiating with a supplier. We cover how to work out your respective bargaining positions, then move on to how you can put together a clear strategy for getting the best deal.
Finally, you will learn how to ensure the resulting contract reflects what you agreed, and how to build relationships with suppliers going forward.
How do I work out what I want from the deal?
If you are very clear on your objectives, you will be in a much stronger position during the negotiating process. To set your objectives, ask yourself:
What do I want from the deal?
Set specific objectives on factors including the price, length and time.
From the offset, work out your bottom-line, ideal and unacceptable prices. Establish how long you wish the contract to last, and anticipate how long the supplier will want it to last. Finally, work out how long you are prepared to spend negotiating.
How much do I want it?
Work out how vital this deal is to your business interests. How much do you stand to gain from the supply deal? How much money do you expect to make or save in the long-term? Are there other suppliers that can offer the same product or service?
Where am I prepared to give ground?
Work out which areas of the deal are non-negotiable and which you are prepared to give ground on.
What can I offer besides money?
Think about whether you could offer a trade or some sort of service to the supplier in lieu of cash.
How can I understand the seller?
Equally crucial to a successful negotiating process is a clear understanding of the seller – by understanding their own motivations, you can use them to get the best deal for yourself.
You need to work out how much the supplier actually needs your business. If you are placing a huge order with a relatively small supplier, you will obviously have more bargaining power. You’ll also then need to consider if the supplier has spare capacity or unused product they need to offload. Are they trying to enter a new sector of the market by building relationships with new clients? If this is the case, you will often be able to negotiate them further down on price.
Ask yourself, what kind of deal will the supplier value? Will they be more interested in repeat business, or a lucrative one-off deal? Could payment upfront be used as a particular incentive?
Where does the supplier have particular bargaining power? Work out what this particular supplier can offer you that others can’t. Do they sell a product with a recognised brand name unavailable elsewhere? Do they offer particularly attractive financial terms? Can they fulfil orders particularly quickly?
Where will the supplier be prepared to give ground? Research the supplier thoroughly to give yourself an idea of which areas they will be prepared to concede ground on, and which are non-negotiable.
Finally, think about how the supplier will approach the negotiation. Will they be aware of any weaknesses in your own bargaining position? What general approach are they likely to take?
How do I develop my negotiating strategy?
Follow the steps below to give yourself the best chance of a good deal on the day:
Write down a negotiation strategy. This should cover:
- The type of deal you want – best-case, average and worst-case scenarios
- Your general approach to the negotiation – will you take more of a competitive or softer, collaborative approach
- Your strengths going into the deal and how you will use them
- Your areas of weakness and how you will deal with them
- The areas you are prepared to negotiate on and by how much
Assemble a negotiating team. Your negotiating team should be as senior as possible, and the people in it should collectively have expertise in all areas of business the deal will cover. If you have no in-house expertise on a particular subject (such as imports or IT), consider getting in an expert or agent to deal with that part of the process.
Create a win-win situation with your proposed deals. Remember that negotiating is a two-way process, and you are much more likely to conclude a good deal if you continually push the benefits to the other side.
Work out the best time to start negotiations. Timing is often crucial – try and start negotiations at a time when the supplier will need your business most, and you are not in a position where you are desperate for a deal.
How can I control the negotiation?
If you come into negotiations unprepared, there is a danger the other side will set the agenda and your carefully-planned negotiating strategy will become worthless.
Take the following steps in order to stay in control of proceedings:
1. Work out clear negotiation points.
From the outset, you should clarify the specific areas of negotiation and obtain agreement from the other side that these will be the matters discussed. If the purchase is particularly large or important, you could agree on a written agenda for you and the supplier, with written heads of agreement covering specific aspects of the deal.
2. Arm yourself with key facts.
If you can, obtain specific quotes from competitor suppliers and use these in negotiation. Make sure you have all the relevant info on the supplier you are dealing with, so you have their motivations and areas of weakness easily to hand.
3. Insist on specifics.
Now is not the time for vague promises. Insist on specific details of proposed payment terms and any discounts the supplier proposes.
4. Only reveal what you have to.
There is no point laying your cards out on the table, unless you are making a specific concession in exchange for something. Use generalities (“We are keen to see this deal go through”) to keep discussions moving in the right direction without actually giving anything away.
5. Confirm agreements at the time they are made.
When you have agreed a particular point, write it down, and get the supplier to confirm that is what you agreed. Don’t be afraid to ask for a little time if you need to consider whether to agree to a particular point.
6. Don’t be swayed by scare tactics.
Remain unfazed by threats and take-it-or-leave-it approaches. More often than not, these are simply cheap tactics used by suppliers looking to pull a fast one.
Where can I look for trade-offs?
Trade-offs are essential in negotiation, but don’t make concessions cheaply, or simply in order to mollify the other side. Every trade-off must be a genuine one, with benefits for you as well as the supplier.
Ask for something in exchange and never give ground simply as a way of offering an olive-branch. Insist on real benefits from the other side. Be particularly aware that some unscrupulous negotiators may offer standard contractual terms disguised as genuine concessions.
Offer incentives that the supplier will value and remember that repeat business and volume of contracts may be of greater value to the supplier than the one-off price of a deal.
Be creative with trade-offs. From your end, there are a number of aspects of the deal that could benefit your business directly without being necessarily related to price, such as more favourable terms or free delivery. You may even be able to offer the product your business makes.
How can I lower the price?
Make counter-offers and never accept the supplier’s first offer. Your counter-offer doesn’t necessarily have to be a lower price – you could ask the supplier to throw in extras at their asking price, such as free delivery.
Pick apart asking prices and ask for a breakdown of costs and get them to justify every penny. Compare prices with competitors’ quotes and highlight any discrepancies that show you are getting a poor deal.
Use your strengths as a buyer. As mentioned above, suppliers value volume of orders and repeat business. If you are comfortable committing to a long-term deal, offer this in return for a discount.
How can I build a relationship with suppliers?
The negotiating tactics outlined above are only part of the equation; more generally, a friendly, professional and straightforward approach will earn you respect from the supplier and can result in more favourable terms.
Get to know the supplier and, if possible, meet them socially before you get down to business and establish some personal rapport. Be professional, pleasant and easy to deal with.
Foster ongoing relationships. If you have concluded a long-term deal with a supplier, get to know them better – visit their premises and meet key people, and invite senior figures into your meetings. Ensure they have contact details for anyone they will be dealing with.
How can I ensure the contract reflects what we agreed?
Many problems with negotiations arise at the contractual stage. To avoid this situation, ensure you do a few things.
Document everything in writing. As mentioned above, whenever an element of the deal has been agreed, write it down and get both parties to confirm the accuracy of the statement.
Make sure payment terms are agreed and avoid any advance payment and other methods that could expose you if the supplier fails to uphold their end of the deal.
Agree standard terms as well as the specifics of the sale.
Your contract should include standard terms including:
- Any warranties or guarantees
- Clauses limiting the supplier’s liability
- Details of price, payment method, delivery, and deadlines
- A clause stipulating that the goods remain the property of the seller until payment is provided in full
Agree contingencies and work out what you will do if problems arise – for example, if part of the shipment is spoiled, work out who will bear the cost of this.