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Managing your money

7 ways to negotiate a better deal with suppliers

Suppliers are the engine of your business. They help you pick up momentum, keep your business moving and get you where you want to be – but if your supplier isn’t reliable or the setup isn’t right, it can all go wrong.

So negotiating a good deal isn’t just about price, it’s about finding somebody you can trust and count on through thick and thin. Any supplier will probably be looking for the same thing from you.

Whether you’re procuring a new supplier or renegotiating with an existing one, it pays to bear in mind the impact you have on the other party’s business too. Careful preparation will put you in the best negotiating position and ensure the relationship will last the test of time.

Here are some key points to consider.

1. Know exactly what you want from your supplier

First, think about what you actually need from a supplier. Consider what your priorities are and what will keep your customers happy. Online retailers may care a lot about their suppliers’ delivery time and consistency, for example, while a restaurant owner won’t want to skimp on quality.

So think about the finer details of an agreement, like payment terms and fixed pricing, and what could be a dealbreaker for you. In addition to the main product or service you’re buying, what other factors are you willing to compromise on and where won’t you budge?

Once you have your redlines, you will then have a clearer picture of which particular areas to interrogate and how you will come to a final decision.

2. Learn how your supplier’s industry works

Next, get to know your supplier’s industry. If you’re looking for new packaging, do your homework around the sector first – from typical pricing to all the terminology. Speak to potential partners in a more exploratory way, or read up on the latest trends.

Fact-finding won’t just give you more confidence, it will also make it harder for suppliers to pull the wool over your eyes. If you know what you’re talking about, you’ll be able to better express your requirements and your chosen supplier will take you more seriously.

As a result, you’ll be able to get to a mutually beneficial deal more quickly.

3. Understand how much your supplier spends

When you’re negotiating on price, you need a reasonable anchor or reference point around which your conversation will revolve.

An employee looking for a pay rise provides a good parallel – if they can anchor their request in the context of the average salary for their position, and prove their being underpaid, they’ll have more success than somebody who plucks a number out of thin air.

In the same way, it pays to investigate how much your supplier spends on their own operation. After you take into account their markup, then you have the knowledge to make a first offer, which will reinforce your position as a reasonable, well-researched negotiator.

4. Speak to your supplier’s existing customers

If you know what your supplier is charging other customers, it’s more difficult for them to charge you any more. So see if your supplier is open to sharing a list of customer references who you can reach out to.

Of course, some customers will have different arrangements than others, with cheaper deals for purchasing in bulk, for instance. These variations can give you an indication of your supplier’s standing in the market and how rigid or flexible they can afford to be.

Either way, anything you can glean from existing customers is useful information that will help you hold your supplier to account. This intel can also provide early evidence around how transparent and trustworthy a supplier might be in the long-run.

5. Figure out what your supplier’s priorities are

Your chosen supplier will have questions for you too, and it’s important to anticipate what kind of areas they will want to interrogate. After all, they also have the power to decline new customers, so it’s unwise to go into a negotiation without considering your supplier’s priorities and any potential concerns they might have.

This is where learning about a specific supplier – what they spend, how much they charge and the language of their industry – really comes in handy. You can build a picture of what their objectives are and whether they even need your custom.

If they’re a big supplier, with lots of customers already, you’ll have less negotiating power. But if they’ve got lots of competitors, then you might have more leverage. If that’s the case, try and anticipate what kind of offers they are likely to make and whether they’re of interest.

6. Make yourself an appealing customer

Mutual ground is a compelling negotiating tool. Once you’ve understood the mindset of your supplier, you can figure out what you can offer to secure a better arrangement – if it benefits your business too, all the better.

Do you have capacity to buy in bulk or the cashflow to pay promptly? There could be a whole range of factors that could make your business appealing, but as you’d expect, a customer who pays on time or buys a lot in one go is generally pretty desirable.

Use your research to uncover other areas that your supplier might want, which could encourage concessions in other areas.

7. Be respectful of the relationship

After you initiate a new supplier relationship, don’t let your business drift into bad practices like poor communication or delayed payments. You probably know the troubles of unpaid debt first-hand, and the time and effort involved in chasing it up, so don’t put another business through the same difficulties.

In the same way as you’d rather keep a customer than lose one, suppliers may well be more flexible than you think. It’s better to be up-front if the existing arrangement becomes untenable – and it needn’t be the end of your relationship.

There may be scope to renegotiate or find a temporary workaround, especially if you can offer a pragmatic solution, like an instalment plan that works for both of you. Your suppliers probably want to do what they can to keep you as a customer.

Ultimately, if you have been considerate throughout your negotiations and tried to invest in the relationship, it will pay off in the long-run. This good-will is just as valuable as any other part of your deal.

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