How to Negotiate with Suppliers for B2B E-Commerce Businesses
B2B e-commerce is a competitive area. It’s important to get the best possible return from your website infrastructure investments. Negotiating favorable deals with your suppliers is one of the best ways to increase return on investment (ROI).
Contract negotiation courses equip e-commerce entrepreneurs with the skills to strengthen their position with suppliers. In turn, entrepreneurs can increase profits for their B2B business. Let’s look at a few ways e-commerce businesses can engage their suppliers and boost ROI.
Research Supplier Costs
Is your offer justifiable? Will your supplier find your terms sustainable in the long run? Ensure you’ve completed your research before you reach the negotiation table.
If you understand the costs the supplier incurs, you are in a better position to negotiate. By working out your vendor’s cost of production, and therefore your vendor’s margins, you have a much better idea of your bargaining leeway. Contract negotiation courses equip you for strategic research. Thorough research can lead to a healthy offer and provide compelling reasoning to earn concessions and agreements.
Increase Supplier’s Market Opportunities
B2B businesses buy in bulk. Bulk orders can increase volume sales for B2B suppliers. To tip the trade balance in your favor, create new markets for your supplier in exchange for lower prices and better trade terms.
For instance, a stationery supplier from New Jersey had tried getting a foothold in selling to Manhattan offices. The NJ supplier gave up after failing to gain traction. As it happened, an e-commerce company operating from New York already had a few clients in Manhattan. The NYC business was ready to expand operations by gaining new clients.
Supplying two new office blocks gave the e-commerce company leverage. This allowed the NYC merchant to bargain 12.5% lower prices and better payment terms with the NJ supplier. The transaction translates to a win-win, long-term relationship.
Reduce Supplier Risks
The shipping and handling of goods is a typically expensive part of supplier operations. Shipping and handling become even more complicated when goods have to cross borders and be imported through ports.
If you can reduce the supply chain risks, you can get better terms from your supplier. You can reduce supplier risks by connecting the supplier with reliable transporters. You can also put up systems for faster port clearance.
According to expert contract negotiation courses, another way to decrease supplier risks is to make early or full payments. Making full payments may not be desirable for cash flow. However, if making full payments gets you higher discounts, it may be worth considering.
Bring up the Competition
For any given e-commerce function, there are many vendors offering similar services. Research and contact the competition to get different supplier quotes. Use these quotes to compare and pick the top two or three.
During discussions, use these comparisons. This might encourage your vendor to make a more competitive offer. Some ways to find competing suppliers include:
- Search engine queries
- Online forums
- Trade publications
- Wholesale and retail sites such as Alibaba
- Your past and current vendors
- Offline or brick and mortar suppliers
Negotiate Payment Terms
Sometimes the amount payable isn’t the problem, but how the e-commerce payments are made. If your supplier demands an 85% up-front payment, this will likely have an adverse effect on your cash flow.
You can haggle more flexible terms to make your operations smoother. For example, pay 30% to 50% up front and the balance in 30 or 60 days. This gives you more capacity to market your products and expedite the sales cycle. Negotiate flexible payment terms in exchange for higher volume purchases.
Negotiate Better Exit Terms
For new products, it may be unwise to tie yourself to large-volume contracts for long periods. Buying in bulk, you risk purchasing products with a low sales turnover and may endure long-term losses. For services, you may be stuck with a long-term subscription for a service that delivers little or no value.
By making flexible and favorable exit terms, you can withdraw purchases if you don’t experience a positive impact within a few months. Additionally, favorable exit terms give you the flexibility to continually test different products from different vendors. Continual testing makes it easier to improve your own offerings and increases profitability.
For more on this topic, check out this recent blog from Trellis CEO Isaiah Bollinger.