Negotiating supplier contracts
Negotiate a supplier price
Price is often the main factor in supplier contract negotiations. Affordability should naturally be high on your priority list, but it's worth remembering that suppliers are in the business of making money too.
How do you negotiate a supplier price
Some price negotiating techniques will be familiar if you have ever bartered at a market. Here are a few you could consider:
- Never accept the first offer. Make a low counter-offer in return. The other party is likely to come back with a revised figure.
- Ask the supplier to justify the initial price and explain any variables. Always ask what else the supplier can include in the suggested price. This could drive value for money.
- Ask the supplier to be upfront in relation to discounts and if they require any qualification, eg buy 200 for the price of 150. Be clear when discounts would apply (eg if it is an introductory offer, when will it expire).
- If the price is suspiciously low, ask yourself why. Are the goods of sufficiently high quality? Do they really offer value for money? What will after-sales service be like?
- Expose any ongoing costs. Ask about repair costs, consumables and other expenses. If prices are falling in the supplier's market, point this out.
- If the price includes features you don't need, try to lower it by asking to remove those features from the deal.
- Use your bargaining power to get a good deal. For example, if you're a big customer of the supplier, you could ask for bulk discounts.
- Show yourself as someone who is likely to generate good business for the supplier, in the current deal and possible future deals as well.
If the supplier refuses to negotiate on price, consider other areas that would benefit you such as longer credit terms or sale or return policy. If negotiations aren't progressing well, it may be worth letting them know that you are considering alternative options.
Pressuring suppliers to reduce costs
If you're asking a supplier to slash their prices - perhaps by threatening to walk away from the negotiations - you may end up getting a poor deal. High-pressure cost negotiation strategies may force the supplier to cut costs elsewhere, for example in customer service or quality control, which could prove costly to you in the long run.
Even if you are a supplier's main customer and enjoy most of the bargaining power, forcing it to meet low prices at which it could go out of business will damage your reputation as a highly valued customer. The supplier may turn to other customers and is likely to feel resentful. Read about the importance of paying suppliers on time.
Find areas of mutual gain
While it's often worth trying to optimise costs, it is rarely wise to focus on price alone. That is because the cheapest deal isn't necessarily the best. Many other factors influence whether the deal will be good value for money - for example, delivery times, quality of service, warranty, etc.
Look for areas of mutual gain and try to strengthen the partnership by agreeing mutual dependencies. See how to set objectives for contract negotiation.