6 Tactics for Successful Vendor Negotiation
In the American culture we tend to accept whatever prices are stated when we make purchases. While this is practical in a retail setting, we should take some different approaches when it comes to purchases for your business.
It’s hard to think of a business today that doesn’t use technology products to run the day to day operations from software services to payment processing to supply procurement. Knowing these six tactics can save you a substantial amount of money in all these areas.
As a business owner and head of finance for several startups, I’ve found these tactics to work extremely well and have saved hundreds of thousands of dollars. Give them a try.
- Never assume list price is what you have to pay
This is the most common mistake most people make. Just because the price is listed on a website or in a proposal, it’s often negotiable. Sometimes the vendor will offer certain discounts right off the bat but sometimes they won’t. The larger the purchase, the more room there is to negotiate because vendors generally would invest more money in acquiring a customer for higher priced services or products. So they really want the sale.
2. You don’t ask, you don’t get
Don’t be afraid to ask. You just don’t know how far they are willing to go if don’t ask. In my experience, vendors are not surprised when you ask for discounts or a better price. Trust me, they won’t think you are cheap or cheesy as long as you ask nicely. You don’t need to be aggressive and demanding about it. They understand it’s good business practice to get the best price possible for your business and they respect it.
3. Know their competition
This may seem obvious but we all get busy sometimes and don’t have the time or desire to do the research. But doing your homework can give you a lot of ammunition for your negotiation. They are very willing to negotiate when they know you have choices and you are considering other options. I would often let them know what I like about their product honestly and also let them know if there are others out there that I would use as well.
4. Know your data
Before getting on the phone with a vendor, gather all your requirements and data so that the vendor can provide you with the best prices that fit your needs. The information should include historical usage, present need and projections of what you will need for the next year. For example, if you are negotiating for payment processing, you should know the total dollar volume and number of transactions per month, average transaction size and what you are currently paying. Let the vendor know that you are expecting x percent growth in the coming year and most importantly, that they have to show an overall lower price to get your business. You can also give them a target price to hit so they have something to work with.
5. Get to the boss
Once they come back with a quote, ask to see if they can reduce it further. Repeat this process until they tell you they would need a high level approval, from either a VP level or CFO level would be great. That way you know where the buck stops and you’ve gotten the best possible price. Once I was able to get a 60% discount off of regular pricing for a SaaS product for one of my companies using this approach.
6. Don’t sign auto renewals
Once you’ve agreed on a great price, make sure you read the fine print. For SaaS services, these can be in a contract or just in the Terms and Service on their website. So make sure you check. The most important part of the fine print is when a contract will renew. In the majority of cases, you will see that contracts calls for automatic renewal for another year if no cancellation notices are received 30 days prior to the end of the contract. This is because it will save them time and money to skip the sales process for the next year and it locks you in for another year. I can’t tell you how many times this has come up as a problem when you’ve had unsatisfactory experiences and want to cancel the service but come to find out it automatically renewed just days ago.
Always strike out the auto-renew clause and put it on your calendar for review 30–45 days before the end of the contract term. Let the vendor know you are reviewing the renewal so they know they will need to pay attention to you. Review all your usage data since you last signed the contract to see if your projection panned out and what you might want to pay for the upcoming year.
Follow these steps and you should be able to realize some substantial savings. Good luck!