The vendor contract negotiation process does not have to be a stressful experience, yet it can make even the most capable professionals and experience buyers feel anxious and tense. Even after a mutually-acceptable contract is negotiated and signed, many buyers are left with the feeling that they could have done better—that they left something valuable on the table.
It shouldn’t be this way, particularly in most business negotiations, which involve teams of people to share in the responsibility for preparation, collaboration, problem-solving and other important aspects of the contract process.
All that’s needed is a sound understanding of what you should do—and what you should avoid doing. In that regard, following are five helpful vendor negotiation tips for all organizational buyers:
1. Know the vendor as well as the vendor knows you
Good vendor reps have learned as much as they can about you and your organization prior to negotiation, and they enter the process armed with that knowledge. They’ve gathered intelligence on your business, your competitors, the state of your industry. They’ve identified all the decision-makers involved, and they understand their needs.
Yet on the other side of the table, many organizations do not do such a good job at understanding the vendor. Some buyers feel they have the upper hand—after all, it’s the vendor selling them, not the other way around. As such, they often fail to collect adequate vendor intelligence, or they try but cannot find access to useful information.
Preparation is critical. Empower yourself with as much information you can to better assess and understand your vendor’s bargaining strengths and weaknesses.
2. Manage organizational and personal expectations
Most buyers are clear about the goals and objectives of their department or the entire organization, like budget constraints or obtaining specific terms and conditions. With that clarity, they are better-equipped to manage expectations around those goals.
It’s equally important for individuals involved in the negotiation process to manage their personal expectations—for example, the basic human need to look good, or at least to not make any mistakes.
This dynamic of managing expectations is amplified at work, where reputations and real consequences are at stake. It involves both individual and team effort to stay focused on goals, on what’s negotiable and what’s not, and remaining calm and confident during the process.
3. Tackle complex issues first
When it comes to buying a product or service for an organization, the process is inherently complicated. It involves multiple people, needs that could be mission-critical, costly investments, long implementation cycles, multiple levels of risk and many other factors.
Whether you’re buying office supplies or implementing new technology or committing to multi-year contracts for a professional service, the negotiation process involves many moving parts. It’s always best to tackle the most challenging issues first—the ones that carry the greatest risk, raise the most questions or could have the greatest impact on the organization. Start with the complex issues, the ones you deem the highest priority, when everyone is fresh. Think big picture before getting mired in details.
4. Don’t agree to their offers or demands too quickly
Sometimes the desire to get the process over with as soon as possible takes over, but it pays to pace yourself. Research shows that negotiators whose offers were immediately accepted ended up feeling less satisfied with the final agreement—and that’s true for both sides, the one that makes the offer and the one that accepts it. It’s what leads to that “leaving something on the table” feeling that makes people wonder if they could have accomplished more. It doesn’t mean that every single point should be countered, but that thoughtful consideration and discussion takes place.
5. Aim for a “win-win” that includes the relationship
Most vendor relationships go beyond a single purchasing decision in time. For strategic vendors—such as those with unique goods that are necessary to your organization, or those that supply products or services you use on a regular basis—good relationships are crucial. Rather than limit your win-win thinking to pricing or terms and conditions, make sure it also encompasses the relationship. Set a positive tone of mutual respect and cooperation. Without that, you will harm the trust and support you will need from the vendor to service you satisfactorily, and true win-win results will not be attainable.
All of these tips can be implemented by any buyer, yet we might add one more tip that’s optional, which is to bring in outside help from negotiation experts like LAC Group. Our spend management and information experts bring objectivity, vendor knowledge and contract expertise that could be valuable to you, both during the negotiation process and in the long term.