When it comes to buying goods and services, getting the most bang for your buck is critical in today's economy. And for many business transactions, the secret to doing that lies in smart negotiation. Remember that you don't have to accept your suppliers' opening terms. Instead, look for ways to create transactions that are mutually beneficial to you and your vendors.
Back Scratching
Successful negotiating is more art than science, and the best way to master it is by studying some examples.
Consider this common scenario: You want to create a Web-2.0-worthy site for your business. Unfortunately, the really good designers are in great demand - and your favorite one wants a big portion of his fee up front.
What to do? "It's not unreasonable for a Web site designer to ask for some front money before starting work, but you can negotiate a reasonable amount," says Phil Marcus, principal of The Negotiation Pro, Columbia, Md.
"Suppose the firm asks for a third of the total up front for a new project," he says. "A good approach is to point out that the vendor does not have to buy any expensive materials like a construction contractor does, then offer to pay 10 percent up front. Then ask, 'Can we set out a schedule of payments to occur when certain portions of the site are done?'"
Many times, says Marcus, project agreements call for payments to be made when work completion reaches 25 percent, 50 percent and 75 percent. The balance due is paid upon completion, minus 10 percent of the total bill for a 30-day period. "Holding back 10 percent allows you time to fiddle with your site and make sure everything is working correctly before your final payment," says Marcus.
The idea here is to avoid a drain on your cash flow, maintain control over the quality of the service you receive and be fair to the vendor.
Let the vendor know that if you are happy with the job you will order more work, will put a link to the vendor's own site on yours and will post a fair appraisal on public bulletin boards such as Angie's List. A vendor will go an extra mile for any customer who promises to help improve business.
Talking Turkey
The approach that works with a Web designer can work with any number of suppliers, whether offering services or products. Consider the following:
1. Your credit card issuer hikes your interest rate.
Suppose your credit card issuer spikes your interest rate, even though you are a stellar borrower. This seems to be happening more often today as a result of the turmoil in the credit markets in general, and the many personal and business bankruptcies in particular.
In many cases interest rates are negotiable, especially with smaller lenders, says Marilyn J. Holt, a Seattle-based management consultant. "You are in a better position if you have established a personal relationship with your banker," she says. "Small banks and credit unions are much more open to negotiation than the big banks, which can be intractable."
Before you talk with your banker, do some homework. Ask other merchants about their rates, then ask your banker to match them for your outstanding debt, or, failing that, for new debt you incur. Take any competing credit card offers you have received in the mail with you to the meeting.
Finally, be prepared to horse trade. "Offer something in return for a better rate," advises Holt. "Even if you are not in arrears, be prepared to knock the amount you owe down to 33 to 50 percent of the current amount."
Another dealing point: Some banks may offer you a lower interest rate if you set up a monthly automatic payment of a minimum amount.
What's not negotiable? Billing cycles, for one thing: They are set by third-party transaction handlers and your bank has no control over them.
2. Your merchant account provider hikes your monthly fees.
If you're like many businesses, the ability to accept credit cards is critical to your success. Unfortunately, many merchant account vendors take advantage of that fact by hiking their fees.
Take heart: The merchant account industry is highly competitive and your vendor is likely to be open to counter offers.
"Pricing is always open to negotiation," says Paul A. Rianda, an Irvine, Calif.-based attorney specializing in the bank card industry. "The market has gotten to the point where profits have compressed and the main way of retaining merchants is through lowering price. Keep in mind that your existing processor knows you can go somewhere else and get it cheaper -there's always another guy beating on your door."
Merchant account pricing involves two main components: The first is the interchange rate, or the percentage taken by the merchant account provider of each sale made. There are dozens of these rates, varying by type of card and transaction. The second main fee is the transaction fee, which is paid for each transaction. This generally runs around 25 cents.
"In many cases your lion's share of savings will come from negotiating better interchange rates," points out Rianda. Start by analyzing your sales by category. Generally, focus on the rate for "card present" transactions if you're a brick-and-mortar outfit and on "non-swiped transaction" if you're primarily a Web-based merchant.
Shop around and see what other merchants are paying and what other merchant account vendors are offering. Then you can ask your own vendor to match the better deal. Emphasize that you enjoy working with your current company and want to stay with them. What will they do to keep you?
3. You need to expand your vehicle fleet with limited funds.
"There's lots of competition in the vehicle leasing field, so negotiations are wide open," says Holt.
Here are some things you can offer your vendor in exchange for lower monthly fees:
- an extension of your lease into multiple years
- leasing additional vehicles
- inclusion of the leasing firm's banner with a "leased from XYZ" sign on your vehicles
- paying more months up front.
In addition to lower fees, you can ask for:
- more-frequent, less-expensive maintenance work
- less-expensive emergency service and the use of replacement vehicles without the vendor's logo
- lower cost to apply your business's name and logo
- installation of security systems.
4. A product supplier starts including surcharges.
Earlier in this story we discussed service providers such as Web designers and public relations firms, but product suppliers can pose their own problems. Suppose you're dealing with a vendor that starts adding fuel and delivery charges or other bill-fattening items, or starts requiring COD.
"If this is a regular vendor with whom you deal regularly, you have more negotiating power," says Holt. "Tell them that now you have a good relationship and you want better terms. Offer to keep them as a vendor if they move out of the COD and give you a 3 percent discount if you pay in 10 or 15 days."
The bigger you are as a customer the better negotiating position you are in. Consider offering to increase the amount of merchandise you buy if they eliminate surcharges.
5. You need to expand your office space.
Suppose you need more office space, and it's available in the building you rent. How do you approach your landlord?
In today's economic environment, commercial real estate is a "tenant's market" in many cities - meaning that you have more negotiating power.
You are important to your landlord because you are a proven quantity - a reliable tenant who is actually expanding in tough times.
Tenants everywhere are asking for - and getting - free rent. "You might tell your landlord that in exchange for taking twice the space you are willing to sign a three-year lease, and you want the first three months free rent," says Marcus. Or you might ask for more build-out money.
Other ideas: A landlord might have flexibility to give a tenant more amenities, such as more reserved parking, which do not cost the landlord out of pocket but provide significant benefit or cost savings to the tenant. The tenant may also want to negotiate a cap on common area maintenance expenses.
6. A customer demands more work for the same money.
Finally, let's look at the other side of the business coin: It's smart to negotiate with customers, too.
This holds especially true when you are offering services. Suppose a customer asks that you provide more service for the same fee. "These requests are happening more often today in the down economy," says Marcus. "Everyone is looking to get more for their money."
What to do? Again, try to develop a win-win scenario, suggests Marcus. Tell your customer that you need to charge more for the additional work, but because you value the customer's business you will give a discount after a certain amount. "Maybe you offer to give the customer a 20 percent discount after 'x' amount of work is done," says Marcus. "Your customer wins because of the discount and you win because you enjoy a bigger account."
Speak Up
Many small business owners don't bother negotiating because they feel they will be turned down. Don't make that mistake. Vendors are ready to talk turkey in today's tough economy. After all, they want to increase revenues and retain accounts as much as you do.
"Practically anything can be negotiated for," says Marcus. "There is no reason not to ask. The worst they can say is no."
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