Supplier negotiations can make or break your e-commerce business. How you negotiate with your suppliers determines many aspects of your business. These include profit margins, delivery times, product quality, and customer satisfaction.
Developing effective supplier negotiation techniques can set your business up for success. Contract negotiation training can support your goal of managing your costs to improve your profits. Here’s how you can get your contractors to agree to terms that speed up your business growth.
Getting price reductions is likely the most obvious way to reduce the cost of goods sold (COGS). Your COGS are the direct costs you incur in transferring goods from your suppliers to your buyers.
However, most e-commerce merchants accept the supplier’s price tag without bargaining for discounts. Most contractors are open to giving discounts, especially on high volume sales. According to negotiation trainers, you will do well to persuade the supplier of:
- The high and long-term value you bring.
- Not announcing to competing merchants in your industry that you’re getting a significant discount from your supplier.
- Being sparing in undercutting your competition from the discounts you negotiate. Competing on price creates pressure on the supplier to cut prices for other merchants.
As an e-commerce merchant, there are several types of price discounts you can bargain with your contractors.
If you will be purchasing from the supplier in large quantities, the vendor may be open to giving higher discounts.
We see in negotiation training that most suppliers are willing to provide quantity discounts. Higher sales to you mean the supplier incurs less marketing and distribution expenses per unit of product sold.
Manufacturers and wholesalers are often open to offering retail merchant trade discounts, and the merchant sells at the retail price.
Trade discounts are especially popular with drop shipping e-commerce merchants. The supplier can agree to trade discounts if you show you can establish new distribution channels or can provide storage facilities.
A contractor will more readily discuss promotional discounts if the merchant works to promote the contractor’s products. As a merchant, use your ad expenses, staff training costs, display costs, and other promotional costs to achieve promotional discounts.
In most business cycles, your supplier will experience fluctuations in sales. Your supplier may consider seasonal discounts if your e-commerce business makes higher purchases during their low seasons.
You can negotiate cash discounts with your supplier if you pay for purchases in full. Cash discounts may also apply if you pay your invoices before they are due. You get the benefit of lower prices while the supplier benefits from more liquid cash flow.
When you’re sourcing e-commerce products and realize your vendor is from your county or state, you can initiate talks for geographical discounts.
The supplier incurs relatively low shipping, handling, and customs costs and can pass on those savings to your business.
Negotiate Non-Price Items
Sometimes, it makes more sense negotiating non-price items rather than price discounts. E-commerce training attendees report the best outcomes when they deliberate non-price concessions in addition to price discounts.
What if you could get your supplier to send you 20 free samples that you could use to promote your sales out of the 1,000 units you’re willing to order? If each unit costs $15, then 20 free units give you the equivalent of $300 in discounts.
Your e-commerce business adopts retail returns best practices, but who absorbs the loss on returned goods?
Negotiate into your contract with your supplier for a favorable returns policy on their end. This reduces losses that may be due to defects in product or the wrong market-product fit.
Negotiate with your supplier so they can offer support to your customers. Support may be in the form of customer care services, after-sales services, maintenance, limited warranties, and extended warranties.
Instead of bargaining for cheaper prices, you may gain more value discussing timely or frequent product deliveries. Benefits of negotiating delivery may include:
- Reduced inventory costs
- Improved inventory turnovers
- Shorter waiting times for customers
- Quality retention
Create Win-Win Relationships
In most cases, as an e-commerce merchant, you may find you’re not the biggest customer to your supplier. When your business purchases account for less than 5% of the vendor’s sales, you might not hold much sway in discussing favorable terms.
In this situation, instead of pushing for discounts, contract trainers often advise that you create other forms of value. For example, you can research the contractor company and identify their concerns and challenges.
Share your sales data with the contractor and build rapport with decision-makers. Position yourself as a sounding board for their new product ideas.
Creating personal and professional relationships with decision-makers is a helpful foundation. This positions you as an ally deserving of discounts and other favorable contractual terms.