Five tips for negotiating with powerful suppliers

As an independent business owner, your purchasing power with your suppliers may be more modest than that of their other customers – particularly if those suppliers are large and powerful corporations.

But there are still techniques for negotiating more favourable terms – even with a company that has the upper hand. Here are five approaches.

Talk to your suppliers to find mutual interests

Your ability to negotiate with larger suppliers depends on several factors, such as your business model, specialism, customers and sector. You need to examine each one, looking for any small areas of leverage.

Start by defining what makes you successful – for example, why your customers love you. Those niches or selling points may also make you valuable to some suppliers. For example, if your brand is strongly associated with environmental protection, they may want to work with you as it builds their sustainability credentials. Or you may have some specific scientific or technological expertise that could help them.

Andy Benson, Business Growth Advisor at Elephants Child, recommends looking for intersections between you and your suppliers’ goals.

“Dig into your suppliers’ objectives to understand how aligned you are and how you might be able to help them,” he says. “Any alignment may help you push for more favourable trading.” Andy says it’s surprising how many companies overlook this research and miss opportunities.

“Many businesses focus on building customer relationships but neglect their suppliers and have no idea what value they add to them. For example, have you asked your supplier what’s important to them this year and how you can help them? Have you had quarterly or half-yearly review meetings with them?” Once you’ve found potentially mutual interests, you can tailor your negotiations.

Find out where they might be flexible

Every supplier will have some flexible and inflexible variables, so probe for softer areas. “You may think your suppliers don’t want to negotiate, but the more you talk to them and understand their needs, the more that might change,” says Andy. “Even if they have a reputation for dominating their distributors, try talking to them first. If you can help them grow a certain market or increase margin, you never know.”

Discuss all potential options

Some suppliers might negotiate prices; others never will. But they might give you better terms in other areas, which could be more important, depending on your business model and financial situation. For example, an extension of credit or payment terms will ease cash flow; if you’re cash-strapped, that may be much more valuable than a small discount.

Alternatively, you may be able to arrange exclusive products or bundled offerings with higher margins and up-selling opportunities. For example, gaming consoles are often low-margin products. But offering add-ons and bundled propositions to keen, loyal gamers could align your branding and increase margin significantly for you and the suppliers.

You could also arrange to receive a product or service exclusively or before other providers. This could hugely benefit businesses whose customers value rapid access to a product after launch, boosting sales and increasing your brand value and customer loyalty.

“I’ve been working with an art-gallery client with one dominant supplier – an art publishing house – that tended to dictate terms,” says Andy. “But talking to the supplier helped the client identify areas of synergy in being able to offer a particular artist’s work first in their gallery. Through joint communications, this helped add kudos and exclusivity to the gallery’s brand and helped the distributor meet their commitment to promoting that artist. That collaboration is worth more to the gallery than any small discount.

“They also then discovered the publishing house was willing to give them more goods on sale or return, which means they don’t pay for anything until they sell it. That was a game-changer for their finances and enabled them to reinvest in broadening their proposition. The supplier turned from a sometimes foe to more like a partner.”

Look for collaborations

Some supplier relationships may benefit from a collaborative approach, developing the relationship to include joint activities around research and innovation, training, communications, sales or marketing.

Not all suppliers will collaborate, but it’s worth looking for mutual areas where you could work together. If you have a critical or hard-to-replace supplier, such collaboration could be crucial.

“Some businesses may have experienced negative relationships with dominant suppliers, but it’s essential to explore ways to turn them into partners rather than adversaries,” says Andy. “For example, if you can do any promotional or other activity that helps boost their sales or increase margin, you could be hugely valuable to them, despite being much smaller.”

To reduce risk for the supplier, you could ask for a retrospective discount based on sales of up-sold products, for example.

“Some brands are so powerful you have to work with them almost no matter what,” adds Andy. “But you’d be amazed at how many companies – even huge global brands – will be interested in discussing commercial opportunities and what can flow from that.”

Look for alternatives and prepare to walk away

Map all your suppliers and identify which are critical to your business and where alternatives exist. If you have multiple options, or if a supplier sees you as the best or only customer in a specific segment, you could afford to be braver in your negotiations. You could even prepare to walk away if they’re too inflexible.

Map potential scenarios in the negotiation and plan responses to each. Set red lines beyond which you’ll refuse to negotiate further because your interests are no longer sufficiently aligned. You may find they come back with a better offer – but if they don’t, you have fall-back alternatives.

How we can help

Our SJP Partners are all business owners themselves. Their first-hand experience of the challenges you face as a business owner, combined with their financial expertise, means that they’re uniquely placed to help you take your business to the next level. For help with both your business and your personal finances, get in touch now.