It’s no secret that negotiation is an important part of doing business. To be successful you have to constantly negotiate with clients, partners, and even staff. One of the most delicate relationships you have as a business owner is with your suppliers – you need them to keep your business going, but also want to make sure they don’t take you for granted. Next time you’re starting to work with a new supplier, or are renegotiating with an existing supplier, keep these points in mind to be sure of a better outcome.
Remember your bargaining chips
The first bargain-hunting technique that most people think to use is to shop their offer around. This, however, is time-consuming and your price will reflect your volume. One alternative is to use a broker to help. However, there will be a fee involved depending on the size of the offer required. You could also offer services in kind, however, you need to be aware that contra-deals attract a very high tax rate.
The best way to negotiate with suppliers is to put yourself in the supplier’s shoes. Ask yourself, why would they give you a preferential offer? What can you bring to the party? What does your business have to help influence their decisions?
This brings us to two of the bargaining chips that you can use, volume and prompt payment.
Pay on time
As a small business owner, you know how much of a hassle you can go through just to get paid on time. Your suppliers are going through the same headache and many will be willing to offer discounts for early, or even for on-time payments. While policies vary between suppliers, it is not uncommon to get a 2.5% discount for early payment of your account. When multiplied across your main suppliers, you will find this quickly adds up to more money in your pocket.
If you’re a long-term customer with a great payment track record, or can otherwise guarantee that your orders will be regular and your payment will always be on time, you’ll sometimes be able to negotiate an even better discount.
Building up this record will also strengthen your relationship with your suppliers, giving you an extra bargaining chip that can help with priority orders, occasionally delayed payments, or other special considerations you may need in the future.
There’s a substantial pricing gap between discounts offered to large businesses and those given to small-to-mid-sized businesses (SMBs) – some suppliers inflate prices for small businesses up to 11% to make up for the discounts they give to big businesses. But as an SMB, how do you combat this price-hike and successfully negotiate your way to similar rates as the big guys?
One answer can be to increase your buying power by teaming up with other SMBs in a buying group. With more guaranteed orders, suppliers are often able to offer better terms, including cheaper rates, more favorable payment options, or delivery terms.
Find like-minded small business owners who purchase your industry-specific product and talk to them about having a mini buying group. I know a group of four building material suppliers who get together to buy nails and sealants by the pallet and split them when received. They each get the benefits of the bulk pricing and the supplier has serviced four customers in one go at a lower cost of sale to them.
Double your chances
To double your chances of successfully negotiating a discount, use your volume to push for a better offer attached with your payment record. Also, don’t forget that in negotiating for a better deal, getting a cheaper price is not the only option. You might benefit more from different payment terms that take care of your cash flow levels.
Your relationships with your suppliers are key to the success of your business. By leveraging your bargaining tools, asking for discounts, and increasing your buying power you’ll be able to enter negotiations with suppliers that lead to a positive outcome for all involved.
Michael Reid is the founder of SME Savings, a free buying group for small business owners SME Savings