Negotiating With Vendors: What Works and What Doesn’t
Business owners can arguably make more money in less time by negotiating effectively with vendors than in any other daily business activity. With that in mind, OPEN Forum got two business owners and an expert on negotiating to provide their best insights into how to get the best deal from vendors: Chris Schroder, president of SPR Atlanta, a public relations firm in Atlanta; Dan Schneider, CEO of SIB Fixed Cost Reduction, an expense management firm in Charleston, South Carolina; and Craig Rabin, Chief Dreamer at Mr. CER Tech, a Seattle invention house, and inventor of The Airhook.
Is it important to negotiate effectively with vendors? Why?
Chris Schroder: It’s important to negotiate, first, because everyone expects you’re going to. I think they’re probably a little disappointed and maybe lose a little respect if you don’t. And everything is negotiable.
Dan Schneider: A thousand dollars in savings is a thousand dollars. A thousand dollars in sales is a thousand dollars minus cost of goods and labor and other costs. Any money you can save by negotiating goes straight to the bottom line.
Craig Rabin: That’s especially true when it comes to creating a retail product. If you save even a penny or two at the very beginning, the work you do negotiating can pay off tenfold.
What are some errors you or business owners you know have made negotiating with vendors?
Schneider: The biggest error is people focusing only on the price. They don’t look at the contract terms. Maybe there are fuel surcharges or delivery fees or maybe it’s a multi-year contract with annual price increases and they can’t get out of it. Price is very important, but so are all the fees, surcharges and terms. A cancellation is another charge that should be negotiated.
Schroder: What I’ve found is it really helps to enlist the support of an expert in the industry to act as a broker or go-between. They widen the scope of the negotiations to include elements I would never begin to think about and that we can now negotiate. When it comes to business, there are so many technical details involved that it makes me more confident when I have a consultant who knows the business cold. It’s well worth it.
Rabin: I love the points that were made. Also, always do your homework and understand what you’re getting into. This starts from the very beginning before you get a contract with a price on it. Make sure when you’re going into those conversations you’ve already done your homework. Understand everything. And use your lifeline. Phone a friend. Everyone who manufactures something in Hong Kong has heard the horror stories about it getting stuck on a boat or dock. I’ve never had a product manufactured before, and the learning curve can be steep. I can negotiate, but when I need to know the details from a new experience are legit, I bring in a colleague or consultant who knows what they’re doing.
Schneider: If you can, ideally you want to negotiate before you actually need something. Then you have time to do the dance. Sometimes it happens that you can’t do that, but when you need it in November and you’re negotiating on the first Monday in October, it helps a little bit.
What best practices do you follow in negotiating with vendors?
Schneider: If it’s a situation where you have an incumbent, we always try to work with them rather than put it out to bid and shop it. If there’s a solid vendor relationship there and we’re happy with the service, we try to negotiate with that vendor. We let them know we know what the market price is, but we negotiate with them.
And remember, it’s not just the price you’re paying per month. It’s how long you’re going to do it for. A lot of people have this mentality that they’re not going to sign anything more than a one-year agreement. But if you’re willing to sign a five-year agreement as long as the price is right, the vendor knows they’re going to have your business for five years. There’s more value to them in that than nickel-and-diming on the price. They’ll do all sort of things to have you engaged for another year.
We never recommend a one-year contract. We always recommend a long-term contract to protect pricing. Have an out if your needs were to change. But on very few things does the price actually go down. Right now, for any service that has a fuel surcharge, you can lock in phenomenal prices because gas is so low.
Schroder: One thing I always ask is whether there is an ability to barter or trade services for something. I heard a speaker recently who is a former FBI agent who negotiated hostage situations. He taught me a very interesting tactic. He said the other side, more than anything, wants to be understood. You want to develop a series of questions that will end with them saying, “You’re right.” Make them understand you know what they’re looking for. If you can get them to say, “You’re right,” enough times, they’ll often come over to your side.
Have new technologies or techniques changed this? Online ordering? Others?
Rabin: Absolutely. Especially for an inventor looking for different components, the access to online information and pricing from dozens of different suppliers is essential as far as getting the appropriate price. The second would be social media. You can very easily go onto social media and find out what other people say about a vendor. The good, the bad and the ugly is online these days. You have to use that. But remember: Whatever information is available about the vendor is also available about you.