Negotiating on price as a small business owner

As many as one-third of owner-managers say they do not see themselves as natural negotiators, according to a recent survey. But you don't have to go in with all guns blazing to achieve more favourable terms.

Lisa Smith, a sales executive at water cooler company Tana Water, managed to secure a 40 per cent reduction in product costs by entering into a long-term partnership with one of her suppliers.

‘Before I was appointed, the products were sourced as and when they were needed and handled by several people in the business. This led to arrangements with multiple suppliers and meant that we were not able to benefit from the best deals. Just dealing with one supplier means their growth is now aligned with ours and so they are able to offer the most competitive pricing,’ she says.

Richard Perry, chief operations officer at media company GyroHSR, renegotiated deals on contracts by cutting his number of suppliers by half and offering the existing ones more business in exchange for better terms. ‘There is also the hidden cost of dealing with a lot of suppliers with regards to paperwork. It can become very inefficient, especially when things go wrong and you need to resolve something quickly,’ he says.

For Perry it wasn’t just a case of laying down the terms. ‘From my own experience when clients ask for rate reductions, it’s a lot easier if there’s a dialogue. It’s all about respect and reaching a common understanding, rather than taking an antagonistic approach. I feel we now have much stronger relationships with them as a result,’ he says.

Are you being served?

But it may be more than just the prices you are updating by renewing contracts. Martyn Hart, chairman of the National Outsourcing Association, says requirements can change quickly with service contracts.

‘With small entrepreneurial businesses it’s often the case that contracts might be two or three years old, but the company has moved on a lot since the terms were first put in place. So it’s a good idea to see if everything matches up and if the current requirements are the same as the original ones.’

Hart adds that it can also pay to shop around when a contract comes to an end to see if you can get a better service or terms elsewhere. However, he adds that you should always take the size of the supplier into account as this could affect your ability to renegotiate with them later down the line.

‘If they are so big that you are inconsequential to them, there will be little chance of being able to renegotiate the terms. Equally if you are much bigger there’s a danger that you will represent too much of their business and if they cut prices later on you will go out of business,’ he says.

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