Ask FundThrough: How Do I Negotiate a Vendor Agreement?
For many businesses, securing a vendor agreement is exactly the kind of stuff that dreams are made of – so naturally, business owners can be reluctant to ask for their fair share when it comes time to sit down at the negotiating table. This week, our team lays out the steps every business owner can take to ensure that all parties emerge from vendor agreement negotiations feeling like winners.
Skilled negotiating is a really big deal. The World Economic Forum ranks negotiation as one of the top 10 skills to thrive in 2020. When negotiating with your vendor, it’s important that at the end of the process, both parties feel like winners. It’s a game of give and take. However, it can be difficult to negotiate an agreement when the vendor is much larger than your business. Don’t sweat it though, because you can equalize the power if you follow the following steps.
A little bit of preparation goes a long way.
Here are some negotiating considerations and questions to think about or answer.
- What are your company’s business requirements? Make sure that you prioritize them.
- What are your must-haves and nice-to-haves?
- What are performance measurement standards that are critical to your business?
- What are some things that could possibly go wrong if you work with the vendor, and how can you mitigate the risks?
- Do you need to consult with a lawyer?
- What are you prepared and not prepared to compromise on?
- Have a secondary negotiating goal you can ask for if you do not get your primary one.
- At what point are you prepared to walk away from the negotiation?
Research the vendor in depth (Google isn’t enough).
Check out their website, LinkedIn company page, talk to some of their employees and customers. Learn about the leadership team. Research the vendor using commercial databases. Most libraries grant you access to commercial databases via a portal using your library card – you’ll get information that you won’t find elsewhere.
- Make sure you look at information such as price of products and services and level of service to customers.
- What do they value most? What’s valuable and important to you may not be the same for them.
- What are the organization’s top three strategic priorities?
- What are their strengths and weaknesses?
- How valuable are you to them?
Being prepared and informed is the greatest advantage you can have when negotiating a vendor agreement.
Develop your negotiating strategy.
You’ve gathered all this good information, now it’s time to use it to develop your negotiating strategy.
- What offers do you think the vendor will likely make?
- How can you use your strengths to get concessions from the vendor?
- What ways can your weaknesses work against you during negotiations and what’s your planned response?
- What would a win/lose and a win/win negotiated agreement look like to you?
Agree where the negotiations will take place.
If you feel like the place puts you at a disadvantage, suggest a change in venue that feels right to you.
Make sure that decision makers are on both negotiating teams.
It saves time when decision makers are at the table.
- Embrace silence during negotiation and do not rush to talk.
- Listen carefully so you can respond with confidence.
- Gauge where the vendor negotiating team is at throughout the process.
- When you feel satisfied that you’ve reached a negotiated agreement that matches what you consider a win/win, it’s time for the vendor to draw up a contract for your purchase. It should include all the things both parties agreed to.
The above is not exhaustive, but it will enable you to negotiate a vendor agreement that’s right for your business. And remember, things are seldom carved in stone, so you can renegotiate nearly anything.