Some businesses think of their high-volume supplier costs as fixed and/or automatically budget annual spending increases for them. Other businesses go through the motions of getting quotes and issuing RFPs (requests for proposal) for their high transaction spends, even as they struggle to effectively use these strategies to effectively negotiate meaningful savings. Of course, everything is negotiable in business, and getting better at negotiating high-volume contracts is one of the most surefire ways to decrease high-volume spending—and ultimately increase profit margins.
Not everyone is a skilled negotiator, but everyone can learn some basic tips on how to be more prepared during negotiations. Let’s explore the top five things every business should be doing to save money when negotiating high-volume contracts:
- Know your product specs inside and out: Businesses that come to the negotiating table unprepared and without hard data are less likely to drive a good bargain. As a matter of practice, you should be keeping track of all sorts of details on products, including manufacturing numbers, package quantities, the price you’ve been paying, and the annual quantity you’ve been ordering. If one supplier sells a box of 50 exam gloves and another sells a box of 100, you need to remember you’ll need twice as many of the former as the latter.
- Focus on the big-ticket items you buy: Most high-volume spending follows the 80-20 rule, where 80% of the total spending bill is consumed by just 20% of the SKUs. Rather than try to negotiate every line item, it’s best to focus on the 20% of items that make up 80% of spending. You’re much more likely to get a great deal on a handful of items than an average deal on a long laundry list of items.
- Keep track of data in Excel: Excel has some incredibly powerful features that are well-worth the time and investment to master. Pivot tables allow you to quickly summarize and consolidate large sums of data, while v-lookup allows you to cross-reference data between multiple spreadsheets. The more data you have at your fingertips, the more informed you’ll be during all-important negotiations with your suppliers.
- Offer personal information that could help you get a better deal: Suppliers are more likely to offer deals to businesses they already have a relationship with, including past contracts. The reason is simple: Suppliers already have information on spending patterns of these businesses, so the contractors themselves are in a better position to calculate the bottom-line pricing they’re authorized to offer. Hence, you want to provide as many details about your spending volumes and patterns. For example, the price difference between paying by check vs. credit card could be 2% to 4%, and the number of deliveries that will have to be made to complete your order could affect your price quote by as much as 10%.
- Consider joining a Group Purchasing Organization to get even better deals: Some businesses are just too small to get the types of deals that their bigger counterparts can negotiate. That’s where a Group Purchasing Organization (GPO) can made a big difference. GPOs do the heavy lifting on pricing analyses for you, to the point where you can know exactly how much you’d save before you even commit to joining a GPO. CenterPoint is proud of its GPO, which has produced cost savings of 15% to 35% for consumable supplies and services.
To learn more about how the CenterPoint GPO can help you get more competitive pricing on high transaction spend areas, please contact us; we’d be honored to help you explore this option. Even if you don’t decide a GPO is right for your business, it’s important that you increase your negotiating prowess by knowing your product specs inside and out, focusing on negotiating the biggest-ticket items, keeping track of your data in Excel, and offering up personal information to help you get bot