What's your Problem?

How do I negotiate my suppliers' prices down?

by Jeremy Bullmore
Last Updated: 31 Aug 2010

Q: I'm in the unpleasant position of needing to negotiate down the costs of my suppliers. I have a small company and longstanding, friendly relationships with them all, often meeting them in the local pub. I am dreading doing this but necessity dictates. How can I do this without causing too much pain?

A: How much simpler it must be for those in charge of vast, remote companies whose main contact with suppliers is through formal contracts and the impersonal payment of invoices. Do you remember the Ferris wheel scene in The Third Man? When human beings are reduced to anonymous specks, far, far away, it becomes a great deal easier to come to terms with hurting them.

It's far too late to advise you never to let supplier relationships develop into social ones - and I'm not even sure that would be good advice, anyway. The worst thing you could do is funk it and just send them letters out of the blue, as if you'd never had a pint together, with the new terms set in stone: 'Kindly sign below to signify your acceptance and return at your earliest convenience.'

However urgent you believe these renegotiations to be, I think you must allow a little time for your suppliers to prepare themselves. It needn't be long, but it will be helpful. Tell them in writing that you've no choice but to reduce your costs and that you'll be asking for a meeting very soon. Try to avoid those euphemisms so beloved of utility companies. You won't be 'reviewing' the prices you're currently paying or even 'adjusting' them - you'll be asking for them to be lower. It may sound more brutal but it's a lot more honest.

By the time you meet, they should be partially prepared (they can hardly be unaware of the troubled times we're in) and should already have given some thought as to how they plan to absorb a drop in their revenues. By all means let your genuine sympathy show - but resist the temptation to expect any back. You will indeed find it painful and you're probably under exactly the same pressure from your own customers - but please don't invite commiseration.

You may also be tempted to build a bit of slack into your original demand so that you can be seen to soften your terms as a result of your conversations. It's entirely up to you, but on the whole, I think you'd be better to work out the most reasonable figure you can live with - and make it clear from the start that it's not open to negotiation. Again, that may seem a bit heartless, but actually it's probably more considerate. You shouldn't let hope linger on.

You can't, of course, eliminate their pain altogether. You can only hope for the response: 'Well, if it had to be done, it couldn't have been done much better.'

Depending on how these conversations go, you might like to say: 'I hope we can still have a pint on Friday but I'd quite understand if you'd rather not - at least for the time being.'

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