But negotiating with eCommerce suppliers isn’t always about bargaining on price. You can negotiate for your supplier to support your product delivery, quality control, competitor tracking and customer satisfaction. Knowing how to engage your suppliers can unlock your eCommerce business potential, even in competitive markets. Here are five of the best ways you can negotiate with your suppliers to boost your eCommerce business.
Negotiate Payment Terms
Paying full price up front can hurt your cash flow, but bargaining for partial payments is a delicate process. You may have to establish trust over time and make repeated attempts. A negotiation class can hone your skills and facilitate the relationship-building process. Some invoicing and payment terms to consider are:
- Terms of Sale: Discuss terms such as shipping agreements, who handles taxes and duties, payment methods, penalties for late payments and incentives for early payments.
- Payments in Advance (PIA): Negotiating for a lower PIA leaves your business with more cash flow for operations. If your supplier demands a 60% down payment, bargaining it down to 45% increases your cash in hand.
- Net 7, 30, 60, 90: Net 7 means your net payment is due seven days after the invoice date. For better cash flow, aim for the highest-possible term.
- Line of Credit: Suppliers may agree to monthly or quarterly payments. The closer your relationship with your supplier, the more likely the supplier will agree to line-of-credit pay.
Reduce Supplier Risk
Paying up front reduces risk for your supplier. Upfront payment makes for easier management of the supplier’s accounts receivable while boosting their cash flow.
While paying full price up front may be undesirable for your cash flow, an upfront payment may earn you a higher discount. Early-payment discounts tend to have a high interest rate.
For example, say your supplier offers you a 2% discount if you pay in seven days rather than the usual 30 days. It means you receive 2% interest now rather than holding your money for 30 days. The discount equates to an annualized interest of over 36%. For such a high return, an early payment may be worth considering.
Increase Supplier Opportunities
In negotiation classes, merchants learn to construct win–win proposals. For example, if you can create new markets for your supplier, then you can win better trade terms. For instance, you can introduce other eCommerce merchants to your supplier.
Buying in bulk can also tip the trade balance in your favor. For example, imagine that an eCommerce merchant selling massage oils gains a high-volume client operating a luxury spa chain. A 250% increase in the merchant’s purchases would provide leverage to negotiate higher discounts with the massage oil supplier.
Leverage the Competition
For most eCommerce niches, there are likely many suppliers offering similar products. Contact your supplier’s competitors to get different quotes.
During negotiations, bring up comparisons of the different quotes if the competition’s terms are more favorable. Such comparisons may encourage your supplier to make a more competitive offer. You can find and research competing suppliers through:
- Search engine queries
- Wholesale sites such as Alibaba
- Brick-and-mortar suppliers
- Chambers of commerce
- Trade publications
- Online forums
- Your past and present suppliers
Negotiate Non-Price Items
Some non-price terms can have a high impact on your profits and customer satisfaction. Consider discussing the following conditions:
Support: Negotiate with your suppliers to provide support for your customers. Support may include maintenance, warranties, customer care services and after-sales services.
Deliveries: The timing of deliveries may affect customer satisfaction. Frequent and timely deliveries may:
- Reduce your inventory costs
- Reduce customer wait times
- Improve inventory turnover
- Enhance quality retention
Trade-Outs: What if you could persuade your supplier to send you promotional samples? Say, if you received 10 free samples out of your order of 500 units. If each sample costs $20, the trade-out could translate to an extra $200 discount.
Successful Negotiations with eCommerce Suppliers
As an eCommerce merchant, your trade terms with suppliers play a crucial role in your profit margins. Negotiation classes can boost your contract negotiation skills. For effective negotiations, consider what’s essential for your suppliers and use that information to propose a win–win agreement.
For instance, paying up front reduces supplier risk while affording you a higher discount. Don’t forget to consider non-price trade terms. Aspects like customer support may increase customer satisfaction and earn you more business.