Negotiating with Vendors (The Right Way)
As a business owner venturing into the consumer product goods (CPG) industry, negotiating with vendors and manufacturers can be a daunting task, especially if you have little to no experience. But it is a necessary step you will take, and one that can financially affect your business. Mastering this skill is crucial for the success and sustainability of your business. Effective negotiation can lead to favorable terms, cost savings, and help establish strong partnerships.
What is the foundation of successful negotiation? Preparation, and you’ve heard all of the titans in business say so. Before approaching any vendor or manufacturer, it’s essential to equip yourself with comprehensive knowledge about the product you are intending to sell, the market/industry, and the intricacies of production costs. Research (and compare) potential partners to understand their strengths, weaknesses, and pricing structures. Going with the first vendor you find is not always the right choice; make a list of the pros and cons for several of them before saying “yes” to one.
Building relationships is another vital component of negotiation. Vendors and manufacturers are not just service providers; they are pivotal partners in your business. Taking the time to develop a rapport with them can pave the way for better terms and a more collaborative partnership. Strong relationships foster trust and goodwill, making vendors more inclined to accommodate your requests and work towards mutually beneficial solutions. While business owners may have the vision, a vendor will be an integral part of the execution of the product; remember to see them as a part of your business, as a part of your team. And most importantly, remember that they have extensive experience in their field. Listening to their suggestions is a sure way to prevent small mistakes early on.
Clear communication is paramount in any negotiation. It’s crucial to articulate your needs, expectations, and limitations from the outset. Whether it’s about pricing, delivery times, or quality standards, transparency helps avoid misunderstandings and sets a solid foundation for productive discussions. By clearly conveying your requirements, you ensure that both parties are on the same page. Like any personal relationship, business relationships are just as important and require constructive communication skills.
“Contract manufacturers are keen on helping emerging brands because of the potential growth opportunity and they are willing to make an investment on you. However, in some cases, entrepreneurs are not well-prepared for initial meetings. In the initial engagement, tell them about your brand, how you started, how you are funding it, and your vision moving forward retail distribution, etc. (be brief and to the point). Always keep in mind that you are one of hundreds of customers they are working with. The better you present yourself and your brand, the better the outcome. Ask for leniency on minimum orders and/or lead-times, but don’t abuse the relationship”- founder and CEO of LDR Consulting Diana Madrid and LDR Consulting’s Business Development Expert Tracy Griffin share.
Starting small and thinking long-term is a practical strategy that sometimes business owners forget to do. While you may not have the buying power of larger companies (yet), you can offer potential for a long-term partnership. Beginning with smaller orders allows you to demonstrate your reliability and build trust and if you do not ask, you will never know. As the saying goes: closed mouths don’t get fed. As your business grows, you can leverage your proven track record to negotiate better terms based on increased volume.
Our team member, Priscilla Jiminian, started her company just this way: “I had no place to store large inventory for my skincare brand. I spoke with several vendors to explain my situation and many understood. I made sure to make them feel secure by mentioning that I was looking for a long-term business relationship and will continue to purchase from their factories as I grew, and it worked.”
Negotiation is not solely about the price. Cost is a significant factor and it is important to consider the total value of the agreement. Elements such as payment terms, delivery schedules, and additional services can often be more valuable than a lower price. By looking at the overall value proposition, you can create win-win scenarios that benefit both your business and your vendors.
Compromise is an inherent part of negotiation and part of the nature of business. Be prepared to make concessions and show flexibility to foster a cooperative atmosphere. Identify your non-negotiables and areas where you can be more lenient, this helps to find a middle ground that satisfies both parties.
Negotiation is a skill that improves with practice, so don’t be afraid to read up on the best ways to do so, or speak with a mentor. Reflecting on each negotiation experience allows you to identify what worked well and what didn’t and it will become second nature as you grow your business.
Owning a business is continuous education and challenges and although negotiating may seem intimidating for business owners with little experience, with thorough preparation, clear communication, self-empathy, and a focus on building strong relationships, you can secure favorable terms that support the growth and success of your business. Everyone starts somewhere and you can achieve your goals; be patient, open-minded and receptive to what others with more experience may suggest, it just may save you time, effort and money.
