Negotiating supplier contracts

Negotiation tips for dealing with suppliers

Guide

Every supplier negotiation is different. It is important to find the right negotiation tactic to fit the particular supplier you're dealing with, and the outcome you hope to achieve from the negotiation.

You should set objectives for negotiation and develop a contract negotiation strategy in advance of the negotiations taking place. Negotiations are often complex, especially if they are critical to the business, so planning and moving forward with care are of vital importance.

Negotiation tactics for supplier contracts

  • Start by defining your priorities, for example low price, high-specification goods or a specific delivery schedule. Review your negotiation position and identify the supplier's goals. Try to establish how important your custom is to them.

  • Focus on the positives. Highlight the aspects of the deal you're happy with and the points you want to discuss in more detail. Ask the supplier to do the same. Don't reveal your bargaining position straight away.

  • Don't necessarily accept the first offer - you can counter or allow the supplier to come back with a different figure, if you feel that the offer on the table is unfair or overpriced.

  • Don't disclose what you're prepared to compromise on too early in the negotiations. Instead, use your concessions as bargaining chips, getting your supplier to agree to something you really want in exchange for something you're willing to give up.

  • Ask the supplier to reveal the starting price and any discounts early in the negotiation. Otherwise, they may offer discounts in return for a concession on your part - when the discount was available anyway.

  • Set out in writing the key points of any agreement you reach. Prepare a letter of intent or a term sheet to reflect the terms of your deal. See how to agree supplier contract terms.

Negotiating tactics to avoid

Buyers, as well as suppliers, can sometimes use certain negotiating tactics in an attempt to steer the agreement in the direction that benefits them.

Such negotiating manoeuvres include the following:

  • If one party keeps referring to urgent deadlines, or a person they need to confer with, they may be using pressurising tactics. Proceed with caution.
  • One party may try to pressure the other into agreeing to a term they're not happy with. Ask for a break if you're feeling under pressure. Each time you agree a term, clarify that you have understood it correctly and write it down.
  • In some trades, suppliers set artificially high prices and then permanently discount them. If this seems to be the case, check that any concessions the supplier gives are real - negotiate discounts that go beyond the standard level.
  • The supplier may bundle unnecessary features in the deal as a way of inflating the price. If you don't need them, ask for them to be removed and discuss the price of only those elements in the deal that you absolutely need.

It's important to be aware of those tactics to avoid unfair advantage. If you're considering using some of these tactics yourself, think carefully. Applying too much pressure or demanding unfair concessions from your suppliers can weaken your position. See how to negotiate price with suppliers.