7 Tips for Negotiating With Suppliers
August 3, 2022
Online sellers and suppliers have a mutually beneficial relationship. Sellers need suppliers so that they have something to sell, and suppliers need sellers so that their items aren’t just sitting in warehouses. But for eCommerce business owners, actually matching with a supplier isn’t always easy.
You need to find a company that makes sense logistically while still offering you an excellent, competitive price. That means there’s going to be a lot of negotiating with suppliers involved. If you’re new to this kind of meeting, you might balk at the idea of sitting down with a supplier and entering heated negotiations. Don’t worry – we’ve got your back. Here are 7 expert tips on how to negotiate with suppliers.
1. Arm Yourself With Knowledge
Before you begin the negotiation process, you need to do one important thing: research. If you don’t arm yourself with knowledge before entering the negotiation, you put yourself in danger of being taken advantage of. Spending some time performing proper research and finding answers to basic questions is crucial. You can turn your knowledge into a tool that gives you an edge in negotiations.
If you walk into a meeting with no knowledge of competitors’ prices, industry standards, or what kind of discounts exist, you will have to accept everything they say as the truth. A supplier can suggest a ludicrous price, and you’ll have no way of knowing if you’re getting ripped off.
If you do your due diligence, however, you’ll be able to counter their offer with specific prices that make sense in the current market. This may lead them to lower their offer. If they don’t, you can walk away with confidence knowing that better deals await you elsewhere.
Call up competitors. Spend a few hours Googling. Do what you need to do to feel like an expert when you walk into that negotiation.
2. Pay Them Up Front
Sometimes getting the price you want requires more than a bit of charm and excellent debate skills. Even those with the gift of gab still need to give the suppliers something in return for a better price or faster shipping times.
One of the most effective bargaining chips for eCommerce negotiations is upfront payments. If you can pay a supplier for an entire shipment ahead of time, they will be more likely to want to do business with you. It’s an excellent way to establish trust. It also shows that you’re serious about building a healthy relationship with them. After all, who doesn’t love getting paid quickly? There are few bargaining tricks that work better than cold, hard cash.
Of course, this tactic isn’t going to work for every business owner. Having the cash flow to make a large payment up front isn’t always feasible. In that case, you could consider offering to pay half up front and the other half at the time of the delivery.
This type of negotiation is not about the exact sum of payment. It’s about putting money down upfront to build a better relationship. Even if it takes a short-term financial toll, payments like these can help you save lots of money in the long run. Therefore, it’s worth considering even if you don’t have a ton of funds laying around.
3. Highlight Your Positive Qualities
Doing business with someone is inherently personal. It’s why we like to sit down with applicants for interviews before hiring them. Even if their credentials are perfect, we don’t want to bring an employee onto our teams if we don’t feel like they will be a good fit. This same concept applies to seller-supplier relationships. Suppliers want to know that you are a good person to do business with beyond the fact that you are willing to pay them for their shipments.
With this in mind, highlighting the positive qualities you and your business have is a great negotiation tactic. If you’ve worked with other suppliers in the past, have your payment history ready. Show them that you’re punctual and reliable when it comes to payments. Show off the strong relationships you have with other companies. Have a clear order plan at the ready so they know that you’re thorough and prepared.
In other words, think through what a supplier would look for in an ideal seller. Then, dig for evidence that shows that you fit those credentials. Selling yourself is just as important as anything else. Enter into the negotiation with the idea that you need to convince the supplier that you are a great client to work with.
4. Try Out the Bogey Strategy
The Bogey strategy is one that has been used in price negotiations for as long as currency has been a concept. It’s considered one of the classic techniques, and you should be familiar with how to use it before sitting down with a supplier.
In essence, the Bogey is very simple. It involves choosing an issue that you eventually concede in order to get what you want. For example, imagine a seller sits down with a supplier and says they always make payments two months after an invoice is sent out. They make it clear that this two-month waiting period is incredibly important to them. If the supplier then says that they can’t wait that long to be paid, the seller can concede the issue – as long as the supplier lowers the price. The seller uses one major issue as a way of getting something else.
The key in the Bogey strategy is to choose an issue that you don’t actually care deeply about. Be ready to give it up. In the example above, the seller doesn’t actually care about waiting two months to pay invoices. Instead, they know it’s something the supplier will object to. Then, they use that objection as a negotiation tool.
Be careful when implementing this strategy, though. If a supplier catches on, they’ll realize you don’t actually care about the Bogey and instead stay firm on the issue that really matters to you.
5. Think Through Every Aspect of the Deal
Negotiating with suppliers can be intimidating due to the sheer number of different facets you need to consider. If you go into the meeting only thinking about price, you are bound to be blindsided when the supplier starts talking about other aspects of the deal. With this in mind, it’s very important that you think about every component of the deal.
One of the first elements to consider is the amount that you are going to be buying. This is critical because you can often secure yourself a better deal if you buy in bulk. Suppliers have warehouses filled with items, and their goal is to get rid of as much as possible. If you are capable of buying a larger quantity, they may want to work with you and offer you a discount.
You’ll also need to think through the shipping process. Shipping is costly in terms of both time and money, so it’s a major part of any deal with a supplier. How often do you need shipments to keep your supply chain running smoothly? Is the supplier able to accommodate that? The shipping price is also a major part of the total cost. Think through whether a quick shipping time is worth a higher shipping price.
Finally, have a clear idea in your head about how long your contract will be. You may plan on signing a one-year contract, but the supplier offers you an incredible discount if you sign for two years. You should know ahead of time whether that will work for your business or not.
6. Don’t Be Afraid To Say No
There’s a certain sense of pressure that every eCommerce seller feels when they step into a negotiation with a supplier. They want to get the best deal possible, but they also feel an obligation to find a supplier quickly. Many business owners feel like there’s no turning back once they’ve gotten deep into negotiations. They may feel guilty to back out after they’ve gotten a few verbal compromises from a supplier.
Remember one important fact: if you haven’t signed anything, you’re free to walk away at any time. If you feel like you have no choice but to accept the final offer once you’re in the meeting, you’re more likely to agree to a bad deal. This can lead to regret in the future
Instead, have a healthy sense of your boundaries. Sure, you should be willing to budge on a few issues and compromise on others, but there’s no sense in accepting a deal that doesn’t work for you. While it may feel like you’ve wasted your time, it’s much better to wait for another supplier than to accept an agreement that will end up costing you in the long run. If you commit too early on, you might end up missing out on other opportunities that could be even more beneficial for you.
With all of this said, don’t expect a supplier to work hard to win you back once you tell them that the deal is off. Bluffing works well in movies, but in the real world, you risk walking away with nothing. This means that you shouldn’t completely turn down a deal if you actually want it. Saying “no” is a powerful thing, but don’t say it if you don’t mean it.
7. Get Your Agreement in Writing
It doesn’t matter how trustworthy a supplier seems. It doesn’t matter if you joke with them or if you discover you’re long-lost second cousins. No matter how well the negotiation goes, you need to get your final agreement in writing.
There are far too many horror stories about eCommerce shop owners who failed to do so and got completely ripped off by suppliers. Therefore, you should always push to get your agreement officially on paper.
One challenge with this is that it can feel like a mood killer. If you and the supplier are both happy with the deal, you may not want to bring down the mood by talking about paperwork. However, there are plenty of ways that you can broach the subject in a tactful fashion.
For example, emphasize that it’s your business policy to get all agreements in writing. This can prevent the supplier from taking it as an attack against their character. You could also mention how it’s mutually beneficial to sign an official document.
In many cases, the supplier will also have a policy of getting agreements on paper as soon as possible. But for those that don’t, be prepared to bring it up in a graceful way. You’ll be thankful you did, and it will allow you to leave the meeting without any qualms or worries.
Negotiating with suppliers is never easy, but it’s a crucial part of your business dealings. Practice negotiating before you enter the meeting, and make sure you have a good idea of which issues are most important to your business.
Of course, having a better understanding of your supply chain and financial forecasts can help you figure out exactly what you need from your suppliers. 8fig offers a suite of planning and mapping tools, as well as accurate forecasting for eCommerce sellers. Check it out today and see how 8fig can help your business reach its full potential.
Rebecca is an eCommerce writer at 8fig. She strives to provide sellers with the information and support they need to succeed in the ever changing eCommerce space.