How Small Businesses Can Get Better Deals from Suppliers

As a small business owner, managing costs and securing favourable deals from suppliers is crucial for maintaining profitability and staying competitive. However, negotiating better terms or prices can seem like a daunting task, especially when dealing with large suppliers who have more leverage. The good news is that with the right strategies, you can build stronger relationships with your suppliers and get better deals for your business. This blog will guide you through 10 practical tips on how to do just that.

1. Do Your Research

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Before approaching a supplier to negotiate a better deal, you need to do your homework. Start by researching the market and comparing prices and service options (delivery times, MOQ’s – minimum order quantities – etc) from different suppliers. Understanding the going rates will give you a clearer idea of what’s fair and whether you’re overpaying. There are plenty of online resources and comparison sites available where you can check the prices of raw materials, products, or services that you need.

Additionally, research the supplier’s business. Are they a large corporation with a vast customer base, or a smaller supplier that relies on long-term partnerships? Knowing their position will help you craft an approach that works for both sides. If you show an understanding of their business challenges, they may be more willing to negotiate.

2. Build Strong Relationships

A key to getting better deals is establishing strong, long-term relationships with your suppliers. When suppliers view your business as a valuable partner rather than just another customer, they’re more likely to offer favourable terms. Always maintain open, honest communication and be professional in your dealings. Pay on time, follow up with any issues promptly, and treat their staff with respect.

Suppliers often value loyalty, and by building a good relationship over time, you may find them more flexible when it comes to negotiating prices or payment terms. A supplier who trusts you is more likely to offer discounts or extend payment deadlines, especially if they know your business is reliable.

3. Understand Their Cost Structure

Having insight into a supplier’s cost structure can give you leverage when negotiating. If you understand the costs they face (e.g. raw materials, labour, shipping), you’ll be better positioned to make informed requests. For instance, if you know a supplier is saving on transportation by using a local distributor, you might ask for part of those savings to be passed on to your business.

You can also ask suppliers to break down the costs in their quotes. Knowing the individual elements of what you’re paying for allows you to identify areas where you could negotiate for better terms, such as lower shipping costs or discounts on bulk orders.

4. Negotiate on Value, Not Just Price

When negotiating with suppliers, remember that price is not the only thing you can negotiate. Many small business owners focus solely on getting a lower price, but there are other ways to get better value for your money. For example, you could negotiate for better payment terms (e.g. extended time to pay, or discounts for early payment), free delivery, or faster lead times.

Think about what matters most to your business and negotiate accordingly. If cash flow is a concern, extending payment terms from 30 to 60 days could be more valuable than a small price reduction. On the other hand, if speed to market is critical, negotiating for quicker delivery times might be the priority.

5. Buy in Bulk

Many suppliers offer discounts for bulk purchases, so if your business can handle larger quantities of inventory or raw materials, this is an excellent way to lower your costs. When you buy in bulk, suppliers save on packaging and transportation costs, which they may be willing to pass on to you as a discount. Be clear about your requirements and ask if they offer better rates for bulk orders.

If your business can’t handle large stock orders alone, consider partnering with another business to place a joint order. Group purchasing allows small businesses to benefit from bulk discounts without overextending their own resources.

6. Leverage Competition

If you’ve done your research and found that another supplier is offering a better deal, don’t hesitate to use that information in your negotiations. Suppliers are aware that there is competition, and they may be willing to match or even beat a competitor’s offer to keep your business.

However, be respectful in how you present this information. Rather than threatening to leave if they don’t lower their prices, frame it as an opportunity for both parties to continue working together ( “I’ve been looking at xxx and realised that they sell the product for £x – is there any chance you might be able to match that?” rather than “I’ve seen xxx selling for £x so unless you match or beat that price I’m switching to them”).  As mentioned above though, don’t forget that price is not always the determining factor – it’s not helpful to save money on a product from a supplier if you have to wait months for it to arrive or have to hold twice as much in stock to allow for longer delivery times.   Many suppliers will appreciate a reasonable approach and may be more inclined to meet your request.

7. Consider Long-Term Contracts

Suppliers often prefer long-term contracts because they provide security and a steady stream of income. If your business relies on regular supplies from the same source, consider negotiating a long-term agreement. In exchange for your commitment, you could ask for discounts, fixed pricing (which protects you from price increases), or better payment terms.

However, be cautious before locking yourself into a long-term deal. Make sure you’re confident in the supplier’s reliability and the quality of their products or services. It’s also worth including clauses that allow for flexibility, such as the ability to renegotiate if market conditions change.

8. Stay Flexible and Open to Alternatives

Being flexible can also help you get better deals. For instance, if a supplier has excess stock or surplus products, they may offer these at a discounted rate. If you’re able to adapt and take advantage of these opportunities, you could save significant amounts.

Likewise, consider alternative products or services that still meet your needs. A slightly different material or product specification might be available at a lower price without compromising the quality or functionality of what you offer.

9. Review Your Contracts Regularly

Once you’ve secured a deal with a supplier, don’t just forget about it. It’s essential to review your supplier contracts regularly to ensure that you’re still getting the best possible terms. Prices fluctuate over time, and what might have been a great deal a year ago may no longer be competitive.

Set a schedule to review your contracts annually or biannually. During these reviews, compare your current rates with the market, assess whether the supplier is meeting your expectations, and see if there’s room to renegotiate based on changes in your business or the broader market.

10. Be Prepared to Walk Away

Finally, be willing to walk away if a deal isn’t working for your business. Sometimes, despite your best efforts, a supplier may not be able to meet your needs in terms of price, quality, or service. In these cases, it’s essential to have a backup plan and be prepared to explore other options.

By keeping your options open and being willing to move on when necessary, you put yourself in a stronger negotiating position. Suppliers are more likely to take your requests seriously if they know that you have alternatives.

Conclusion

In conclusion, getting better deals from suppliers requires a combination of preparation, relationship-building, and strategic negotiation. By understanding the market, focusing on value, and maintaining open communication with your suppliers, your small business can secure more favourable terms, ultimately boosting your bottom line.