A practical example of how to negotiate a price with a supplier

The importance of well-prepared negotiations

Negotiating with a supplier involves enter into discussions with to obtain optimal commercial conditions .

An ideal negotiation is one that leads to a win-win agreement, in other words, one that benefits both parties .

So, this preparation stage is important, as it enables negotiators to start negotiations with the right tools.

Understanding supplier costs and margins

The first step in your preparations is to gather as much information as possible about the supplier.

In particular, you need to find out about the margins they generate and how they structure their costs, as well as their reputation, offers, references and so on. This will enable you to better guide the discussions.

With this information in hand, you'll know which levers to pull when negotiating.

For example, if you want to negotiate textile purchases for your webshop If the wholesaler makes little margin on the products you buy, but more on delivery costs, you're more likely to get a discount by negotiating shipping costs.

Analyze needs and alternatives

It's one thing for you to understand your supplier.

However, it must also understand your budgetary and material constraints .

You need to make it clear your needs in terms of price and product quality . In so doing, it will be better able to propose alternatives to meet your needs .

Setting clear objectives

Before starting any discussions, you need to set clear but above all realistic objectives.

Bear in mind that the best trade agreement is one in which both parties win. Each party will certainly seek to maximize its profits. However, by making excessive demands, you risk offending your business partner.

So ask yourself what you want from these negotiations:

• Reduce purchasing costs?

• Improving product quality?

• Obtain more favorable payment terms?

• Guarantee constant supply conditions?

Setting clear goals will help you stay the course throughout the negotiation.

3 simple but formidable techniques for negotiating a price with a supplier

Here are a number of negotiation techniques you should be aware of before entering into discussions with your supplier.

Price anchoring

This technique consists of set a specific price in order to influence the other party on the real value of the object of negotiation.

Here's a concrete example to give you a better idea. It's the case of a negotiation for the purchase of a used car. The seller sets a high price in order to make the other party believe that by lowering the price, he's getting a good deal.

The difficulty with this technique lies in setting a reasonable, albeit high, price. If it's too high, the other party is likely to get frustrated and abandon the negotiations.

You must therefore anchor yourself at a reasonable price but still higher than the actual price you are willing to accept.

La technique du « give and take »

To negotiate is to make an exchange with another party. You give one thing and get something else in return. This is precisely what the give-and-take technique is all about. It means "give and take" in French.

Each party must therefore concede something in order to receive what she wants . But first of all, you need to take stock of what you're prepared to give. You also need to define what you want and what you're prepared to give up to get it.

For example, if your partner insists on not lowering the price of a product, you risk getting poor results if you persist.

Concede the absence of a discount on this product, but in exchange, ask for a higher discount on another product.

Knowing when to take a break

In the midst of negotiation, you can take a break when you feel you've lost control of things.

Taking a break allows you to take a step back to reassess the situation before sealing an agreement with your partner . This will enable you to review your initial objectives and see where you stand at this stage of the negotiation. You'll then know how to steer the rest of the negotiation.

A concrete example of negotiating with a supplier

To help you better integrate what we've said above, here's a concrete example:

Case study: negotiating a price reduction

This is the example of a food company called "Sacs & accessoires" which wishes to negotiate with one of its suppliers, "Cuir & cie". The aim is to reduce purchasing costs while maintaining product quality.

Before going to the negotiating table, the buyers at "Sacs & Accessoires" took the time to assess the company's needs. Before doing so, they carefully analyzed market trends, current stock and evolving data. They also identified the best-selling bag in their range.

As a result, they chose Cuir & cie as their main supplier, as it met their criteria. Once all the preparations were complete, the two company representatives began negotiations. The "Sacs & accessoires" team prepared a list containing the various points on which they wished to negotiate. These include price reductions.

The team is therefore proposing to set a fixed price for a specific period.

In return, the company undertakes to increase its order volume and maintain it at a constant quarterly level. The approach here is that of give and take. Both parties benefit from the agreement.

The "Cuir & cie" team concedes that a 4% price reduction for bulk orders . After putting these various points in writing, the 2 parties signed an agreement.

Negotiating payment terms

Let's go back to the previous example, but in a different context. Let's consider here that the objective of the negotiation is obtain more favorable payment terms such as longer payment terms or early payment discounts.

This time, the "Bags & Accessories" team came to the negotiating table with a different roadmap. This time, they are asking for extended payment terms, and possibly a discount for early payment.

To justify their request, the team points out that such payment conditions will enable their company to optimize its cash flow and better manage its financial flows. In return, they propose to maintain a constant level of orders.

Following the negotiations, both parties having found a mutual interest in the newly-negotiated terms, they sign the contract.

Handling supplier objections

Negotiations don't always go smoothly. It sometimes takes several meetings to reach an agreement.

Suppliers sometimes object to your requests. Here are some examples of how you can respond:

• If the supplier is concerned that he won't be able to lower his prices, you can propose to maintain a certain level of orders . You can then explain the economies of scale that could be achieved.

• If your customer is concerned about the impact of extended payment terms on his cash flow, you can offer a solution with fractional payments . This would be a way of preserving cash flow for both partners. On the other hand, you could offer the possibility of early payment, if this would enable you to benefit from a discount.

Mistakes to avoid when negotiating

Here are the mistakes to avoid when negotiating with a supplier:

Lack of flexibility

We've seen how important it is to draw up a list of your expectations to keep you on track throughout the negotiations.

However, as this is an exchange and involves reconciling two sometimes divergent interests, you need to know how to rester flexible. The aim is to achieve balance A fair balance between the advantages of one party and the other.

Stumbling over your ideas is a way of compromising the outcome of discussions.

Showing too much eagerness

Negotiating is like playing poker. Never reveal your cards before the time is right. Showing too much eagerness to sign the contract can make you miss out on an opportunity to ask for even more favorable terms.

Neglecting the long-term relationship

Keep in mind that cultivating a good relationship with your supplier gives you stability and a sense of security. to avoid interruptions in supply cycles. Think about this when negotiating. You can't sacrifice your relationship with the supplier for short-term gain.

In a nutshell, negotiate a price with a supplier, means trying to obtain favorable conditions, particularly in terms of price, payment and product quality. However, you must avoid certain pitfalls so as not to compromise your negotiating position. And don't forget to preserve your good relations.