Negotiating Contracts with Vendors: What You Should Know

Negotiating a vendor contract means negotiating a long-term agreement that provides the best price and service for your business. Often vendor contracts are created to reduce cost, improve efficiency, and use resources more efficiently. The best way to begin this process is to open up discussions with your suppliers about your goals, their goals, and a possible time frame.

May 30, 2022
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12:40 pm

As a general rule, you don’t have to be afraid to bargain with your vendors. Many business owners miss opportunities where negotiating the contract could be a great avenue of success. If you know your worth, vendors will be more likely to offer favorable terms at a fair price. This information should be easily accessible by everyone involved as it can help maintain credibility by ensuring that concessions are never forced upon anyone.

How To Negotiate Contracts With Vendors Effectively

  1. Know What You and the Other Person Want

When you're in a negotiation, you need to know what you and the other party want. This should include the context from which the other party is working, as well as their needs and goals for the negotiation. You need to be able to communicate your needs clearly and be able to actively listen during the entire negotiation process. 

  1. Take Note of the Information 

Once you have a clear idea of what you want, take some time to do your research. Bring all the relevant information to the negotiation and briefly note each item on paper. This can be as simple as writing down the company name, phone number, address, and email address associated with each item.

  1. Prepare Yourself for the Conversation

When approaching someone for negotiation, make sure they know the purpose of the meeting and their role in helping achieve this goal. This foundational conversation will help them feel more comfortable going forward. It is important for you to persuade rather than to pressure your vendors to action. 

  1. Be Prepared for Anything

One of the most common pieces of advice given to negotiators is to be prepared for any potential misunderstandings or unexpected changes to the plan. The ability to be adaptable is a key skill for a successful negotiation.

It is not just about knowing how to communicate — it's about knowing how to negotiate. Negotiation means doing your homework to solidify your goals and needs before the negotiation process. When you come prepared, the process is more likely to be successful. 

Some Practical Tips for Successful Negotiations

  • Be clear. Lay out a clear and simple outline for the negotiation with clear objectives. If one party isn't clear on what exactly they're looking for (or why), both parties likely won’t feel comfortable agreeing to a contract.
  • Be prepared. Do your research to find out what the other negotiating party wants. This will help you frame the situation in a way that makes sense to both parties and will promote common ground. 
  • Don't make assumptions. Negotiations are about 1) figuring out what each person values most and 2) working toward finding a compromise that respects those values, while 3) still being reasonable in terms of cost and time required. Suppose you assume things about someone based on past behavior or other factors outside these negotiations (like whether they have kids or pets). You may end up with something unsatisfactory because your proposal isn't meeting their needs.
  • Read the fine print. Be aware of hidden costs. In a surprising number of transactions, there are charges that aren't included in your initial quote or even on your invoice. Confront these details upfront so the other party doesn’t get blindsided by unexpected fees or expenses during the contract.
  • Be patient. It is more advantageous to negotiate the last offer rather than the first one. As tempting as it seems to lower your price initially, it could be interpreted as insulting or unprofessional. Instead, negotiate one step at a time. That way, both parties can move forward without wasting time or energy on unnecessary back-and-forth moves from zero room for compromise.

How to ask a vendor for the most profitable price

  • Make sure to check the market price of your product, if that is not what they are offering, continue shopping around.
  • Don't be afraid to ask for discounts or bonuses in exchange for making the sale happen quickly - you can always come back later once the deal is done.
  • Be prepared to help the seller understand the benefits to them of selling at a fair price. When considering benefits, remember to think - “what's in it for me?”

It is important to clarify that these tips aren't just about asking for lower prices, but rather, fair prices. Businesses will give you the best price only if they think your business is worth their time and energy to invest. If they think they'll lose money by selling to you, then they won't want to work with you. Approach the vendor with a fair price request and a description of the value you bring them as a customer.

The Bottom Line

Negotiation is a necessary aspect of doing business. It's how you collaborate with your customer or vendor in reaching an agreement that benefits both of you. Negotiating is a skill that can be learned, but mastering it is hard work and requires lots of practice. The above tips will help the work run smoother and get you started on the right foot.

Using an intelligent contract negotiation platform such as Inkly can help you simplify your negotiation process and close your deals faster. Get started here to learn more about how our platform can help your business.