Negotiating is a key part of professional life. At some point, everybody needs to conduct a negotiation, either by doing deals on behalf of their business or on behalf of themselves.
What is vendor negotiation?
Vendor negotiation is the strategic process of reaching an agreement that is mutually beneficial for your business and it's third-parties. It may involve multiple discussions, compromise from both parties and the involvement of softer skills which we discuss in this article.
3 key points about negotiating vendor contracts
If you’re inexperienced or lack confidence when negotiating a vendor contract, there are three key points to remember:
- There’s a set of core principles and processes that can be learned and applied to negotiating, which will make you more successful at it
- There’s no single style or approach that you have to adopt to be a successful negotiator.
- Negotiation rarely takes place at a single, scheduled event. It’s a process that can begin from the moment you first engage with a potential counterparty. EVERY interaction is an opportunity to either negotiate or lay the groundwork.
You may be relieved to hear that you don’t need to become hyper-aggressive and confrontational to be good at negotiation. In fact, in 99% of cases, this is exactly what not to do if you want a good outcome.
For the purposes of this article we’ve used the example of negotiating a vendor contract to illustrate the points. However, these ideas are equally relevant for other scenarios and will help you with your vendor negotiation strategies.
The key, overriding principle to start with is that negotiation shouldn’t be adversarial.
“Negotiating parties should view each other as collaborators, looking to reach a mutually agreeable outcome.”
Let’s review the two key parts of this sentence in the context of a contract negotiation:
- Collaboration is key. If you’re reached the negotiation stage with a potential vendor then it’s highly likely that both parties believe there is a deal to be done and benefit to be gained. Having a mindset of working together to achieve this will go a long way to making sure the negotiation is successful.
- Ensuring the contract is “mutually agreeable” is vital. There’s little point in forcing a potential vendor to accept significantly worse terms than they would usually work to. Over time, this can breed resentment and a lack of motivation, creating potential contract breaches.
Five vendor negotiation strategies
There are five key areas you should focus on when you negotiate with vendors, including:
- Know your position
- Know what the other side wants
- Communicate clearly
- Build empathy
- Get personal
- Avoid Fatigue
We take an in-depth look at each of these vendor negotiation skills below.
1. Know your position
It sounds straightforward but you’d be surprised how often gaps in your understanding can be exposed during negotiation, which can weaken your ability to get the result you want.
Complex negotiations can sometimes come down to simple things like how quickly can your business make a payment to a vendor. If an agreed price depends on making a payment before month-end, do you know for sure whether your accounts department has the physical means to make a payment as fast as you would like?
It helps to visualise not just the process of negotiation, but also what needs to happen afterwards for things to progress.
Remember, a successful vendor negotiation is just the means to the end, not the end itself.
If you’re negotiating a vendor contract, your ultimate goal is to realise the benefits captured in that contract. So keep them in mind.
Less than 50% of negotiated savings are typically realised over the life of a contact. - The Faculty
Some key questions you could ask yourself during the vendor negotiation include:
- What’s my budget?
- What’s my hard deadline for having a deal done by?
- Who needs to sign this off and when are they available?
- What elements of the proposed deal are “must-haves” vs “nice to haves”
- What’s my alternative if I can’t get this deal done?
- Can I afford to walk away?
- If everything goes wrong later, what’s the process for contract dispute resolution or cancellation?
2. Know what the other side wants (as best as you can)
If you are working collaboratively, the chances are that you’ll have a good idea of what your potential counterparty wants.
To back this up and give further context, you should also consider the information you have in the following places:
- A contract or proposal document
- Notes from previous meetings or phonecalls
- Past email conversations
- The vendor’s website, including recent news articles (potentially outlining personnel changes or strategic goals)
- Other clients of the vendor
All of these sources give you direct information and context about your prospective partner and can help you be better equipped to negotiate.
3. Communicate clearly
Clear communication is key to stipulating your expectations with a vendor and negotiating terms you are happy with. By negotiating with a single point of contact, you can focus on building a relationship based on trust, transparency and candidness.
When clear and effective communication is established, you can work together with the vendor to overcome any obstacles preventing an agreement. To keep a contract progressing, clear communication isn't just about what is said. It's also about timeliness.
By responding appropriately, and at the right time, to questions or suggestions from your potential vendor, you position yourself as a strong partner for the future.
4. Build Empathy
This will build on the research that you’re able to do in advance by making sure that you focus on what the other party tells you during the negotiation.
Key to being empathetic is effective listening. Again, it sounds simple. How hard can it be to listen to what the other person is telling you?
The truth is “very”, especially if you’re in a complex negotiation. You can easily find yourself thinking about your next point or a rebuttal while the other person is still speaking. A simple technique here is to focus on listening and then repeat the key points that someone has just said back to them to clarify your understanding.
This creates a positive feedback loop as the other party then also appreciates that you have listened to them.
5. Get Personal
Maybe it’s the fault of the movies but the mantra of “it’s not personal, it’s business” seems pervasive even though it’s pretty obviously nonsense.
Business is conducted by people and the quality and nature of their interactions will have a huge bearing on the outcomes.
Consider who it is you’re likely to be negotiating with. What do you know about them from previous discussions, what information does their LinkedIn profile contain that goes beyond their simple professional experience?
You don’t need to become their best friend but building rapport should ultimately work to your advantage.
6. Avoid Fatigue
If your negotiation does come down to a specific meeting you should aim to be prepared to be in it for the long haul.
Fatigue can set in during the actual process of negotiation as people find it taking longer than expected. If you’re fully prepared then you can actually use this to your advantage as other people may start to make concessions in order to conclude the process more swiftly.
For example, they might be under subtle time pressure due to needing to catch pre-booked transport, or the initial caffeine boost from their first coffee has worn off and not been replenished.
You can put yourself in the best position by following these simple steps:
- Expect the negotiation to last longer than the calendar invitation and factor in at least half the scheduled time again on top. Plan any booked travel accordingly.
- Make sure you have sufficient food/drink of your own to maintain the requisite energy for the whole period. Don’t assume it will be provided for you when you’d like it.
- Be aware if the venue feels too warm and, if possible, reduce the temperature or take regular breaks to keep your concentration levels high.
- Maintaining a calm temperament will burn less energy as well as helping to build trust and empathy
Even if your negotiation for a vendor contract doesn’t involve a single summit-style meeting, these pieces of advice can still be applicable. For example, don’t rush to send an email back quickly if you don’t need to as this can lead to oversights or misunderstandings.
You might also want to avoid reading complex documents right at the end of your working day when tiredness is likely to be more of a factor. Save it for the following morning and look at it with fresh eyes.
Linked to fatigue is also the fear that if negotiations break down you might have to go back to the start of the process and look for alternative vendors. That prospect can seem daunting if you’ve put a lot of effort into the process up to this point.
While there may be commercial implications when it comes to further elongating the process, these should be weighed up against the prospect of a less favourable deal with this prospective vendor.
Generally, the advice would be to not enter into a sub-optimal agreement just because it would take time to find a better replacement. However, it’s up to you to weigh up whether “done” is better than “perfect” in each case.
One thing you’ll probably have noticed from the list above is that not many (if any) of these actions require particular skill. They’re mostly the result of putting effort into your preparation and being alert to what the counterparty is telling you during the process.
The confidence that you can gain from thorough preparation can also help you perform better during the process of negotiating for a vendor contract.
If you follow this advice, you’re highly likely to have more positive outcomes with your negotiations and have a more thorough understanding of the businesses that you have contracts with.
This will then be helpful throughout the lifecycle of the contract and again at renewal time.
If you enjoyed this article, you can read more about how to manage vendors effectively in our related blog.
If you want to know more about managing your vendors and contracts with a dedicated software, book a demo below.