10 Tips For Negotiating with Vendors in a Down Economy

Let’s face it. Up to now vendors have had the home-court advantage. After all, their job is to sell you services — and they do it every day. You may be many things, but chances are you’re not a professional buyer. In the back-and-forth with vendors you’ve probably lost a few rounds.

These days, however, the ball is back in your court. With the economy in low gear, many vendors are eager to relax the hard sell and play nice. Despite corporate downsizing, companies are paying on average 10 percent less for the same vendor services, according to Howard Lackow, senior vice president of the Outsourcing Institute, a professional organization and consulting firm based in Jericho, N.Y. Especially in areas where human resources are involved –such as systems integration and application development– it’s not uncommon to negotiate deals for 20 percent off their price before the downturn.

The advantage may have shifted to your side of the court, but that doesn’t mean you should smash every serve into oblivion. After all, you still have to collaborate if you want your project to run smoothly, and you don’t want to create an adversarial relationship from the get-go.

A little savvy can help polish your volley when it comes to negotiating with vendors. Knowledge of fundamentals –and a straight face– is the hallmark of an ace.

• 1. Know the market. The only way to settle on fair price and service quality targets is to understand the market for that particular service. If the market constricts, your leverage goes up. If you don’t understand the market, hire a reputable, experienced consultant –you’ll save money in the long run.
• 2. Ask for competitive bids. In addition to getting your purchasing department on board, a request for proposal (RFP) is the only way to ascertain the current market price — and play off two competing vendors. While you don’t have to reveal prices, you can suggest that one is high in a given area and may want to sharpen his pencil.
• 3. Know your target price. In many cases, the best way to compare vendors –and to get the most for your money– is to use a unit-price model in your negotiations, says Jim Pearse, an executive consultant specializing in sourcing issues with Compass America in Oak Brook, Ill. For example, if your internal Help Desk cost is $24.50 per call, and top-performing Help Desks handle a call for $15.50, you should expect the vendor to aim for the best price of $15.50, a 35 percent improvement. “Of course if your initial cost is $24.50, you can’t expect a 35 percent improvement overnight,” Pearse admits. “But the point is you shouldn’t just settle for a 15% improvement as an ultimate goal.”

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By : Eva Marer