5 secrets to negotiating price with suppliers

In today’s market, the supply and demand environment is more volatile than ever before. To make sure that you are not paying more for your stock than necessary, you will have to negotiate with suppliers more effectively.

It is said that the more you negotiate, the better the outcome for your balance sheet – but this suggestion should be taken with a grain of salt. After all, anyone can negotiate, but to successfully do it, it should be understood that the concept of supply and demand is the foundation for any negotiation. Failing to keep this in mind may end up straining or fracturing your relationships with suppliers, diminishing your reputation within the ecommerce community and placing your business in peril.

So how should you negotiate with suppliers for your ecommerce business? There are myriad negotiation hacks that will help you secure the deals you seek and build your reputation as a shrewd business owner. The experts at Cin7 have created a list of five negotiating tactics to help you get better deals with a win-win outcome. Let’s get started!

#1 Research before negotiating with suppliers

Before you begin negotiations with a potential supplier, you must first conduct comprehensive research. Since they are selling you the product(s), they will have a thorough understanding of its market costs, demand, importance in the product value chain, and they know about your competitors. You should have a fair understanding of these factors too so that you bring credibility to the negotiating table and have a productive discussion.

Doing the due diligence in researching a supplier, as well as their competition, will help you get an idea of market prices while keeping the sales goal of the supplier in mind. Based on your research, your proposal could involve promising long-term business, a shorter credit cycle, or changing the frequency of payments. Therefore, it is important to do your homework in order to proffer potential suppliers a fair, tangible, and mutual benefit in doing business with you.

Helpful Hint: As you research, be sure to note industry-specific terminology. Using it will help enhance your credibility and may be the difference in reducing the chance of suppliers quoting inflated prices.

#2 Calculate your purchasing needs

Once you have a better understanding of the supplier’s business and its needs, your next step is to make sure your proposal fits both their needs and yours.

To construct that proposal, determine the quantity of what you want to purchase, the order frequency, and the total cost of the purchases you would make during a given year. Having this information handy will provide you with more negotiation leverage and give the supplier a better idea as to how much potential you have as a business opportunity for them. The more your proposal meets the needs of the supplier, the more likely they are to offer you the discounts you seek.

Helpful Hint: Ask for bulk discounts. If you have a large order, you are in a great position to negotiate prices. Request to see their discount grids, as most suppliers use them regularly to manage sales. Be sure to refer to data gathered from your  inventory management software when finalizing your tentative order size.

#3 Offer partial advance payments and deferred discounts

The next tip is to offer a partial or full advance for the first order. This is one of the best ways to establish trust and help the supplier decide to start working with you. You can always switch to their standard credit cycle down the line.

This also presents an opportunity to demonstrate a commitment to a mutually beneficial business arrangement. Specifically, when offering an advance payment, remember to ask for a discount on a total purchase volume after achieving a milestone, i.e., meeting a certain sales threshold. This is considered a deferred discounting mechanism, and it helps suppliers ensure that they are going to reach their sales goals before activating your agreed-upon discount.

#4 Be honest and transparent

There are all sorts of reasons to seek a better price for products. For example, you might urgently need a product at a lower price to keep up with the competition or to have enough profit margin to meet your own sales goals. You might be a small business owner who needs a discount to remain profitable or a combination of any of these scenarios and yet not have much to offer in terms of value to the supplier. One thing you can offer, however, is full disclosure of your status. This is a gesture of good faith and will lay the foundation for a solid professional relationship.

It is imperative that you do not use any deceitful tactics like negotiating under false pretenses or making hollow promises to get discounts from your potential suppliers. A business is only as good as the word of those who represent it, so make sure you are earnest in your negotiations.

Helpful Hint: Sometimes a negotiation results in a stalemate. Don’t shy away from pausing a negotiation in the event of a failure to reach an agreement. Keep in mind that the number of sellers for the items you need may be limited based on your purchasing capacity and expected price range.

#5 Once an agreement is reached, get it in writing

One of the most important qualities of a good negotiator is to close the deal in writing. All too many businesspeople make the mistake of not signing agreements after they have completed the negotiation simply due to procrastination or lack of operational knowhow. This can lead to a situation where the other party forgets the details of your conversation, and hence, you may have difficulty reminding them. Also, if the decision-makers forget about certain details that you previously negotiated, you may miss out on the deal you thought you had secured. Therefore, it is in your best interest to finalize and ink the deal as quickly as possible.

Helpful Hint: You may use document signing tools available online to expedite the process and then email a copy of the signed agreement to the supplier. Place your first order reflecting the explicitly stated terms and conditions.

With an inventory and order management system like Cin7, you have the option of connecting to your suppliers via a custom EDI connection streamlining future orders by placing them electronically.

In summary

Negotiating is a tough skill to master in any industry, but as an ecommerce business owner, you will put that skill into practice quite often, thanks to the shortening life cycles of various SKUs and sudden surges in demand for products. While you will naturally get better at negotiating over time, it is crucial that you apply the five tips to be a successful deal broker. Keep your eyes open for discount opportunities, negotiate your way into the best deals with your suppliers, and watch your ecommerce business thrive.

Enter into supplier negotiations armed with accurate sales data gathered from a robust inventory and order management solution like Cin7 that updates in real time with your accounting software. Request a Cin7 demo today.