Today’s businesses need to take every step possible to reduce costs. Initially, many companies look at their highest costs, such as labor costs and profit margins on products. However, vendor costs can be hefty, and as a result, it’s important for all companies to consider ways to reduce those costs. It’s a fine line to walk; you don’t want to create tension with your suppliers, but at the same time you need the best price possible. The key is becoming a skilled negotiator. Here’s how to negotiate with vendors the right way.
Put Time Into Researching Costs
No matter what supplies you need from vendors, from paper to the actual products you sell, it’s important to research what these things actually cost. You don’t have to do this directly through your supplier. If you know you are going to the table to discuss costs with your vendors, your first step should be negotiating what the products actually cost your vendor. Of course, there will be an upcharge and the vendor’s costs, but you’ll have a better idea of what materials are really costing the company.
It’s also a good idea to sit down with vendors to discuss alternatives. For example, your vendor may use a single supplier for a specific high-priced item you need. It may be beneficial to work with your vendor to source more cost-effective supplies.
Become an Asset to the Supplier
Suppliers often base price on volume. The larger your company is, the more of a price cut a supplier can offer. If you are not a large company, be sure to purchase as much as you can from a single supplier. While you may not need a large quantity of one item, you can purchase all supplies you need from one company, making your account more valuable to that supplier.
If you are a large company, show your value. Do you place orders on a regular basis? Is your company trusted and credible when it comes to paying bills on time? You’ll want to show your supplier you are worthy of their best price, especially if you are a larger company. Ultimately, money is the most important motivating factor for suppliers, but “easy” clients that pay bills on time are also worthwhile.
Get Multiple Quotes
You may not want to, but getting quotes from three or more vendors is one of the best ways to get the lowest price. Your goal is to be able to show your vendor of choice what another company can offer. This is one of the best ways to get the lowest price, but make sure you have written documentation proving the lower cost quotes, and make sure the products are the same quality and quantity from the other vendors. Do some research to learn about your vendor’s main competition to make this negotiating tip effective.
Tell the Vendor What You Need to Pay
Another way to approach this negotiation has to do with the approach. Instead of going to the vendor and asking what the best price is, tell them what you need to pay. Keep in mind:
- You need to be realistic. Don’t lowball a vendor and expect to get quality service.
- Be specific about what you need and how much. Volume could make all of the difference in this situation for most vendors. Ask how much of a discount may be available if you purchase slightly more than you are right now.
The key here is to keep the conversation open. It’s important not to go in with an iron fist and assume vendors will want to work with you. Your business isn’t likely the only one in town.
Be Ready to Purchase
If you want product at the lowest price possible, be ready to buy today. If you can make an immediate deposit on a product purchase, you can often get a lower cost. In some cases, it’s best to be ready to deposit 50% or more of the purchase price to get the lowest possible cost. Ask your vendor if there is an available discount to you if you make a deposit right now. Giving vendors cash on hand can build loyalty.
Keep in mind that it takes time and effort to get the lowest price available. If you are willing to have a discussion and ask for a lower rate, chances are good that you’ll get it. Be knowledgeable about the industry, your vendor’s competition, and your overall price point needs. Most importantly, create a relationship between your vendor — a specific person, ideally — and your company. This will foster future opportunities for savings as well.