How Do Negotiations Help Businesses Save Money?
To uncover how successful negotiation strategies can help businesses save money, we asked founders and CEOs to share their experiences. From renegotiating contracts before they expire to building strong relationships through negotiation, here are the top eleven insights these leaders provided on effective negotiation tactics.
- Renegotiate Contracts Before They Expire
- Consolidate Services for Better Rates
- Use the “Yes, But” Tactic
- Be Willing to Walk Away
- Secure Bulk Pricing for Long-Term Contracts
- Understand Value and Market Rates
- Research Market Conditions Thoroughly
- Anticipate and Negotiate Hidden Costs
- Leverage Market Knowledge for Best Deals
- Build Strong Relationships Through Negotiation
- Renegotiate Annually to Save Costs
Renegotiate Contracts Before They Expire
As a business owner, haggling or negotiating should be part of your business strategy. The only possible negative impact of a failed negotiation with a supplier is that you don’t get the terms you’re asking for. As a standard, we make the first move to renegotiate contracts with suppliers before the end of our current contract. Being considered a good customer who pays their bills on time typically puts us in a sound position.
Before negotiating, we always review offers in the market to strengthen our standpoint. By following this negotiation strategy, we’ve significantly reduced our operation costs by getting better terms on car-hire and office equipment. Certainly, cost savings in the current economic climate are essential for growth.
Michael Foote, Founder, Quote Goat
Consolidate Services for Better Rates
Smart negotiations are the core of efficient spending. Our business, same as most businesses, is fully reliant on contracts with a variety of vendors, from the office space we use, our facilities, our phone plan, internet plan, IT support, insurance providers, logistic partners, service partners, hardware suppliers—just to name a few. Being able to nurture supplier relationships and negotiate competitive rates has a direct impact on both our spend, our pricing, and our profit margins.
Just recently, we renegotiated our contract with our facilities provider. When we started off, the services we contracted were also small, and this was reflected in the vendors we used. Now that we have grown, we have made an effort to start consolidating some of these services under one vendor, who, by expanding their business with us, was able to offer us huge annual savings. They win by getting our business; we win by getting more competitive pricing and just one point of contact.
Alexandru Samoila, Head of Operations, Connect Vending
Use the ‘Yes, But’ Tactic
There are many successful ways to approach a negotiation. Experienced negotiators will pull the correct tools from their quiver of strategies to find the right arrow for the right negotiation partner and situation.
One simple way to successfully negotiate is to find a way to say “yes, but” as often as possible. Some points are non-negotiable, but where you have room to move, give them a “yes” followed by what it would take to get there.
For example, if your vendor requests a 5% increase in cost for Q4, you can say, “Yes, but I need an 8% reduction for Q1 of next year.” You have agreed to their terms, so they have their win. But, you have asked for something in exchange that should be more valuable to you.
Another example: when a supplier calls to tell you that their production was delayed and asks if they can deliver to you later, your response could be, “Yes, but you will need to pay for expedited shipping.” This offers the supplier an opportunity to meet their constraints but mitigates the effect on your business process.
And this works with your customers as well. If a customer calls and asks for a discount, you can find a way to provide a discount, but tie it to increased sales or payment terms that are more favorable to you: “I can give you the discount, but you will need to pay on delivery instead of at 60 days.”
While there are many different approaches, this tactic can work extremely well, even with the greenest of negotiators.
Jared Paget, Consultant, Paget Consulting
Be Willing to Walk Away
Negotiation is a key strategy that has helped our legacy tech platform save money over the years. One effective negotiation occurred when renewing a contract with a key software vendor.
This vendor provided specialized software that we relied on but had a monopoly in the market. When the contract came up for renewal, they proposed a 15% price increase. We questioned the large increase since we had not requested any new features or functionality.
We stated that a more appropriate increase would be in the 5-7% range given typical market factors. They declined to budge from 15%. So we explained that while we valued the software, a 15% increase may require us to search for alternative options.
This caused them to reconsider, and they came back with a counteroffer of an 8% increase. We agreed and were able to save 7% from their initial proposed amount, which translated to over $50,000 in annual savings for our business.
The key was being willing to walk away if needed while still communicating our value as a long-term customer. Focusing the negotiation on industry norms and our budget reality rather than emotion helped us achieve a more reasonable outcome.
Sreejita Saha, Content and Digital Marketing Manager, Mitt Arv
Secure Bulk Pricing for Long-Term Contracts
As a law firm, negotiation is pretty much second nature to us. Aside from using these strategies to secure favorable outcomes for our clients, we use them when securing contracts for the services we need. For example, any time we have to negotiate longer-term contracts with service providers like IT support or documentation software, the goal is to secure bulk pricing. Plus, locking in rates protects us from future price increases, which can really add up over time.
In the past, we’ve asked for a longer contract term in exchange for a lower monthly rate. Because we’ve been with the provider for close to a decade, we easily secured a better price along with extra services at no additional cost. It must have saved us close to a couple of thousand dollars over the life of the contract and ensured we had the support we needed without worrying about rising costs.
Riley Beam, Managing Attorney, Douglas R. Beam, P.A.
Understand Value and Market Rates
One key strategy I’ve found effective is being well-prepared and understanding the value of what you’re negotiating. This means doing your homework on market rates, knowing your own budget constraints, and being clear about what you need from the negotiation.
A standout example was when we were setting up our supply chain. By thoroughly researching alternative suppliers and understanding industry pricing, we were able to negotiate better terms with our primary supplier. I approached the negotiation by presenting data on competitor pricing and demonstrating how a more favorable deal would benefit both parties through a long-term partnership.
As a result, we secured a significant discount on bulk orders, which helped reduce our production costs and improve our profit margins. This approach not only saved us money but also strengthened our relationship with the supplier.
Steven Mitts, Founder & CEO, IVeinte Spirits
Research Market Conditions Thoroughly
Research before negotiation is the most crucial and unique strategy for saving money in businesses. Through preparation, understanding the market conditions and the other party’s needs puts you in a stronger position. My company is built on e-commerce. Therefore, there is a significant amount of negotiation with various firms regarding different items, particularly when it comes to determining prices.
I was negotiating with a company that made leather products, so I didn’t find their rate reasonable. I asked for a price reduction, and they said that leather is a scarce product that our country buys from overseas, incurring expenses. My study focused on the fact that Muslim nations execute Qurbani annually as a religious requirement, ensuring that there is never a scarcity of leather. Indeed, they export it to others.
After convincing them that their position as a Muslim state prevented a leather scarcity, I performed research and told them that your nation exports a significant quantity of leather each year. So, they agreed to lower the rate immediately. The power of bargaining and extensive study made this possible, enabling me to save money.
Billy Parker, CEO, Founder, Gift Delivery
Anticipate and Negotiate Hidden Costs
As the owner of a roofing and general-contracting company, I’ve learned that successful negotiation is crucial for maintaining healthy profit margins. One of our most effective strategies has been to anticipate hidden project costs and negotiate their coverage with clients upfront. This approach has saved our business significant money by preventing unexpected expenses from eating into our profits.
A particularly effective negotiation tactic we’ve implemented is the inclusion of a “contingency clause” in our contracts. This clause outlines potential unforeseen circumstances that could arise during a project and establishes who will be responsible for covering these costs. By discussing these possibilities openly with clients before work begins, we’ve been able to create a more transparent and trusting relationship, while also protecting our bottom line.
I recall a time when this strategy proved especially valuable during a large roof-replacement project. After initial inspections, we suspected there might be underlying structural issues that weren’t immediately visible. By negotiating a clear agreement on how such discoveries would be handled financially, we were able to proceed with confidence. When we did indeed uncover some hidden damage, the pre-established terms allowed us to address the issue promptly without absorbing unexpected costs, ultimately leading to a successful project completion and a satisfied client.
Tyler Poole, Owner, White Oaks Construction
Leverage Market Knowledge for Best Deals
I once bought an investment property at a time when few other people were buying. Because I knew the state of the market, I was able to successfully negotiate the purchase price and walked away with a great property that I saved a lot of money on. Bottom line: do your homework before negotiating. That’s how you’ll get the best deals.
Ryan Chaw, Founder and Real Estate Investor, Newbie Real Estate Investing
Build Strong Relationships Through Negotiation
Negotiation has helped me with all of my businesses when it comes to saving money, and in a range of different ways too. For a start, negotiations for my restaurants have allowed me to get equipment, ingredients, etc. at a discount. We’ve built some great relationships with marketing professionals, media outlets, and stores to get discounts, increase the length of our contracts with those different stores, and even create some very interesting campaigns together (splitting the costs as a result).
Negotiation is such an important part of running a business. It helps you to build stronger relationships, save money, and look to the future for a variety of opportunities.
Kam Talebi, CEO, Gigli
Renegotiate Annually to Save Costs
Every business expense is negotiable. Vendors are happy to make slightly less revenue in return for keeping your business. Keep this in mind, especially in the beginning, or if the business has fallen on rough times. We renegotiate our hosting services each year, and it has saved us massive costs over time. No matter what business you are in, make phone calls and renegotiate with vendors. If the business has slowed, explain that if you don’t negotiate lower costs, they won’t have your business for much longer. That fact is very motivating.
Bill Mann, Privacy Expert at Cyber Insider, Cyber Insider
Related Articles
- What Strategies Do Individuals Use to Save Money Effectively?
- What Are the Go-To Methods for Negotiating Better Deals and Saving Costs in Personal Finances?
