Some business owners are born negotiators. They know how to persuade, cajole, seduce and otherwise convince vendors to accept the deal they want.
But plenty of other CEOs and business leaders don’t have negotiating built into their DNA. The outcome of every negotiating session is a question mark, which adds an element of stress to an already difficult situation. What’s the best price I can hope to obtain for a supplier’s goods or services? If I need the vendor’s offering badly enough, am I always destined to pay through the nose?
The good news is, your negotiating skills will improve with some advance planning and some real-life experience. Business leaders aren’t obliged to accept onerous requirements in order to secure a deal with a vendor. In today’s fluid and highly competitive marketplace, everything is negotiable—a fact vendors probably understand as well as anyone.
There are at least a couple schools of thought on how best to approach a vendor. Serial entrepreneur Scott Gerber advocates a hard-nosed approach: “Haggle and then haggle some more. Play vendors’ bids off one another. If a vendor doesn’t give you what you want and you believe you’re being absolutely reasonable, walk away and find someone else.”
In case you miss his point, Gerber adds: “Remember, a vendor’s primary goal is to sell you a product or service, not to make your business a success.”
Other business leaders believe cooler heads should prevail. The world of commerce is progressing towards a model of transparency and the art of negotiating should evolve as well. Honesty and openness can help you achieve the deals you want. Adopting a warlike stance will likely generate hostile relationships that can prove harmful down the road. Positive negotiations, on the other hand, have the potential to foster favorable, long-term relationships with suppliers you need for the growth of your business.
Here are cost-savings tips to keep in mind when preparing for your next high-level negotiations with a vendor:
Be strategic. Never go into a negotiating session with the idea of “winging it.” You and your team should have already explored all of the possible outcomes and how each aligns with your overall strategic plan. Knowing ahead of time what’s genuinely essential and what’s not provides clarity and focus. It also helps you determine where to adopt a “line in the sand” response and where flexibility is indicated.
“Many folks ultimately lose a very good opportunity due to poor negotiations—simply because they were trying to win things that were not that important,” notes TAB SoCal owner and best-selling author Nick Leighton.
Renegotiate every contact on a yearly basis. Business author and educator Steve Odland urges businesses not to assume that a multi-year vendor contract is the best way to yield cost savings. “A smart company policy is not to have the life of a contract exceed one year,” he writes. “This forces annual bidding or at least renewal discussions with the current suppliers.” Though such negotiations may be time-consuming, they almost always “result in lower cost of goods.”
Regardless of its length, every contract eventually comes to an end. This can work in your favor since suppliers understand that you’re not likely to renew a contract if their demands are too burdensome for your business.
Look for opportunities to negotiate volume discounts. Your team should have a pretty clear idea of how much is regularly spent with current vendors, and what competing vendors might charge for the same types of products or services. Armed with this information, it’s a good idea to look at aggregating purchases to achieve savings in volume.
Keep your options open. You may have a good relationship with a particular supplier, but they operate in an especially competitive environment and they know you know that. There’s nothing wrong in exploring other suppliers and obtaining formal bids, ahead of your negotiating session.
You and your team may be unaware of innovations in the design and development of supplies you seek—innovations available from another vendor at considerably lower cost. You owe it to your business to examine all the alternatives. When you let your current vendor know you’ve done this due diligence, it will likely inform their next bid for your business.
Ten Tip Summary:
- Prepare Well.
- Always Tell the Truth.
- Show Your Potential.
- Ask About Incentives.
- Mention the Competition.
- Find a Fair Compromise.
- Think Long Term.
- Take Your Time.
- Get it in Writing.
- Practice. Drill. Rehearse.
Negotiating doesn’t have to mean knives are drawn and blood is shed. As you become more practiced in this area, you may see that small compromises here and there yield the bigger objective you really want. Working out an agreement that satisfies both you and your vendor is certainly the best approach towards saving money now and in the future.
Want to learn more about strategic cost-cutting? Find out if a TAB Board is right for you!