At a glance
- You may have more negotiating power with big suppliers than you think, but you often need to spend time building your relationship and finding mutual interests.
- Even if a supplier doesn’t negotiate on price, consider other things that may work to your business’s advantage – for example, extending payment terms or getting access to exclusive products.
- It’s important to see your suppliers as partners rather than adversaries. Look for ways you could collaborate – for example, with customer promotions of specific items.
As an independent business owner, your purchasing power with your suppliers may be more modest than that of their other customers – particularly if those suppliers are large and powerful corporations.
However, there are still techniques for negotiating more favourable terms – even with a company that has the upper hand. Here are five approaches.
Talk to your suppliers to find mutual interests
Your ability to negotiate with larger suppliers depends on several factors, such as your business model, specialism, customers and sector. You need to examine each one, looking for any small areas of leverage.
Start by defining what makes you successful – for example, why your customers love you. Those niches or selling points may also make you valuable to some suppliers. If your brand is strongly associated with environmental protection, they may want to work with you as it builds their sustainability credentials. Or you may have some specific scientific or technological expertise that could help them.
Andy Benson, Business Growth Advisor at Elephants Child, recommends looking for intersections between you and your suppliers’ goals.
“Dig into your suppliers’ objectives to understand how aligned you are and how you might be able to help them,” he says. “Any alignment may help you push for more favourable trading.” Andy says it’s surprising how many companies overlook this research and miss opportunities.
“Many businesses focus on building customer relationships but neglect their suppliers and have no idea what value they add to them. For example, have you asked your supplier what’s important to them this year and how you can help them? Have you had quarterly or half-yearly review meetings with them?” Once you’ve found potentially mutual interests, you can tailor your negotiations.
Find out where they might be flexible
Every supplier will have some flexible and inflexible variables, so probe for softer areas. “You may think your suppliers don’t want to negotiate, but the more you talk to them and understand their needs, the more that might change,” says Andy. “Even if they have a reputation for dominating their distributors, try talking to them first. If you can help them grow a certain market or increase margin, you never know.”
Discuss all potential options
Some suppliers might negotiate prices; others never will. However, they might give you better terms in other areas, which could be more important, depending on your business model and financial situation. For example, an extension of credit or payment terms will ease cash flow; if you’re cash-strapped, that may be much more valuable than a small discount.
Alternatively, you may be able to arrange exclusive products or bundled offerings with higher margins and up-selling opportunities. For instance, gaming consoles are often low-margin products, but offering add-ons and bundled propositions to keen, loyal gamers could align your branding, significantly increasing margins for both you and the suppliers.
You could also arrange to receive a product or service exclusively or before other providers. This could hugely benefit businesses whose customers value rapid access to a product after launch, boosting sales and increasing your brand value and customer loyalty.
“I’ve been working with a client with one dominant supplier that tended to dictate terms,” says Andy. “But talking to the supplier helped the client identify areas of synergy in being able to offer a particular product proposition first to the market via their retail premises and online. Through joint communications, this helped add kudos and exclusivity to the clients brand and helped the distributor meet their commitment to promoting that new product. That collaboration is worth more to the business than any small discount.”
“They also then discovered the supplier was willing to give them more goods on sale or return, which means they don’t pay for anything until they sell it. That was a game-changer for their finances and enabled them to reinvest in broadening their proposition. The supplier turned from a sometimes foe to more like a trading partner.”
Look for collaborations
Some supplier relationships may benefit from a collaborative approach, developing the relationship to include joint activities around research and innovation, training, communications, sales or marketing.
Not all suppliers will collaborate, but it’s worth looking for mutual areas where you could work together. If you have a critical or hard-to-replace supplier, such collaboration could be crucial.
“Some businesses may have experienced negative relationships with dominant suppliers, but it’s essential to explore ways to turn them into partners rather than adversaries,” says Andy. “For example, if you can do any promotional or other activity that helps boost their sales or increase margin, you could be hugely valuable to them, despite being much smaller.”
To reduce risk for the supplier, you could ask for a retrospective discount based on sales of higher margin products, for example.
“Some brands are so powerful you have to work with them almost no matter what,” adds Andy. “But you’d be amazed at how many companies – even huge global brands – will be interested in discussing commercial opportunities and what can flow from that.”
Look for alternatives and prepare to walk away
Map all your suppliers and identify which are critical to your business and where alternatives exist. If you have multiple options, or if a supplier sees you as the best or only customer in a specific segment, you could afford to be braver in your negotiations. You could even prepare to walk away if they’re too inflexible.
Map potential scenarios in the negotiation and plan responses to each. Set red lines beyond which you’ll refuse to negotiate further because your interests are no longer sufficiently aligned. You may find they come back with a better offer – but if they don’t, you have fall-back alternatives.
How we can help
We have first-hand experience of the challenges you face as a business owner, combined with our financial expertise, means that we’re uniquely placed to help you take your business to the next level. For help with both your business and your personal finances, get in touch now.
We work in conjunction with an extensive network of external growth advisers and SME specialists, such as Elephants Child, who have been carefully selected by St. James’s Place. The services provided by these specialists are separate and distinct to the services carried out by St. James’s Place and include advice on how to grow your business and prepare your business for sale.
Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.
SJP Approved 30/09/2024