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The Dos and Don'ts of Negotiating with Vendors

By |July 09, 2018

Okay, so you’ve reached out to a vendor, communicated what you’re looking for, and requested a service-level agreement (SLA), timeline, and price quote. In an ideal world, the proposal you receive would match your desired budget, goals, and expectations. But that’s often not the case.

A seasoned negotiator knows that a deal’s terms aren’t set in stone simply because they’ve been written down. Every proposal—satisfactory or otherwise—has the potential for improvement. In fact, receiving an SLA, price quote, and approximate timeline is just the beginning of what should be a constructive and fruitful negotiation process. In order to reach an agreement that’s in line with your goals, you first need to know how to approach and communicate with vendors. We’ve outlined the dos and don’ts of negotiating with vendors to help you land the best possible deal.

Do: Come Prepared

Educating yourself on your options can go a long way in negotiations. Take some time to research competitor vendors and get a sense for how their product compares, what their relative overhead costs are, and what price they charge. Don’t be afraid to request price quotes from multiple vendors and ask sales representatives pointed questions that will help you understand their process, product, and deliverables in order to adequately weigh your options.

Don’t: Accept the First Offer

Most vendors have experience working with two types of customers: those who want to negotiate and those who don’t. Your response to a vendor’s first offer reveals what type of customer you are and signals how they should proceed. If you accept the first offer, you’re indicating that you’re comfortable with the quoted price and terms and thereby close the door to discussion. If, instead, you reject the first offer and make a concise and informed counter-offer, you’ll ignite a negotiation.

Saying no in a constructive way can be tricky, so take the time to frame your response in a compelling manner. Once the ball is back in the vendor’s court, you’ll gain a better sense of how flexible they’re willing to be and how much room you have to negotiate.

Do: Have an Alternative

Part of being prepared means having a specific alternative in mind. If you’ve done your homework on the competition and sourced price quotes from a variety of companies, it should be easy to identify at least one viable alternative. Name that alternate vendor in your negotiations to make it clear that you’re considering another option and are not yet sold on their offer. If the vendor you’re negotiating with believes they’re in danger of losing your business to a competitor, they may be more flexible and open to considering your requests.

Don’t: Limit the Negotiation to Price

In any negotiation, it can be easy to zero in on price and forget that there are other factors that influence a deal’s overall value. Payment terms, the duration and comprehensiveness of services, bulk discounts, and possible incentives are all up for negotiation. While a simple reduction in price may seem like a win, be wary of price reductions that come at the cost of forfeiting key deliverables or reducing the duration of service. To negotiate for the best value, evaluate price within the context of the offering (what you’re getting for the cost) and the market (how much competitors charge for the same product or service).

Do: Demonstrate That You Understand the Vendor’s Position

Demonstrating understanding for another person’s feelings or experience is more than just a basic social skill. In negotiations, expressing empathy makes you more likely to receive it. If you’ve done your homework, you should have a good sense of how the vendor operates and how that informs their offer and negotiating perspective. Simply communicating that you understand their challenges and underlying costs demonstrates goodwill and can motivate them to extend you the same courtesy. In contrast, if a vendor feels that you don’t understand their perspective, they’re more apt to label your requests as unfair and may be less likely to go out of their way to be flexible.

Don’t: Forget About the Long-Term Picture

In some cases, relationships with vendors can extend beyond a single purchase. Establishing an enduring relationship with a vendor can save you the time and hassle of repeating the research and negotiation process in the near future. If you foresee the possibility of working with a vendor long-term, it’s important to negotiate not just for the deal you want today, but also for the deal you want in the future.

For deals with long-term potential, price is a more pivotal concern. It may be worth focusing your negotiation strategy on lowering costs. It’s possible to renegotiate your SLA as the relationship progresses and your needs evolve, but you’ll never be offered a lower price than on your first purchase. In these instances, it’s especially important to keep the negotiation respectful and focused to ensure that the vendor is receptive and open to having another dialogue down the road.

The Bottom Line

Both you and the vendor have similar motives in that you both want to do right by your company and make the best possible deal. Despite these similarities, as a prospective customer, you hold some of the best cards in the deck. It’s in the vendor’s best interest to earn your business and sell you a product or service that you’ll be happy with. If you do your research, think beyond price, communicate effectively, and hone your negotiating skills, you’ll walk away with a deal that works for you.

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