My purpose of this article is to explain how to negotiate with tech vendors. Why should you read this? I have been a technology sales professional for over 15 years. I have worked at Value-Added Resellers (VARs), managed service providers, manufacturers, system integrators, and I negotiate with customers all the time. I know all the tricks and can help you negotiate a win-win deal.
In today’s rapidly evolving tech landscape, businesses rely heavily on partnerships with technology vendors to acquire cutting-edge solutions and services. However, navigating vendor negotiations can often be a daunting task, demanding a strategic approach to secure the best terms, prices, and partnerships. Whether you’re a seasoned negotiator or a newcomer to the process, mastering the art of negotiation with tech vendors is crucial for successfully meeting your individual KPIs. Here’s a comprehensive guide to help you navigate these negotiations effectively.
Understanding the Negotiation Process
Negotiating starts before you even begin talking to vendors as described by Johnathan Hughes and Danny Ertel in their Harvard Business Review article, “What’s Your Negotiation Strategy“. You need to develop a plan that includes your objectives for the challenge you are trying to solve. Clearly state your challenge so you have it at the ready to explain to the vendors you meet. This will help you because not every vendor will likely be able to solve your specific challenge 100%.
Step 1 – Do your research first
Your first step is to start your research. Don’t meet with the first vendor you research but start your research with a top 10 list. Based on your research, try to narrow it down to three. It will save you and them tons of time and likely there won’t be enough value in talking to all ten of them. Use your best judgement and select three.
It’s important to understand where you fit in the picture of their ideal customer profile. If you are a small business with 50 people or less, you might have a hard time attracting the right attention from a vendor that has market leadership in their product-set. Make sure you pick vendors that will align with your business profile and is willing to fight for the right to earn your business.
You should also know your budget. Have a good, better, best range, where best means the lowest price and good meets your maximum budget. Your goal is to hit your best range as close as possible.
Then, find out when they close their business for the end of the year. Do they follow the calendar year? Where are you at in their end of quarter? These are important times for businesses as they are trying to close quarters and years strong. It is the best time to get discounts. Typically, you want to start your purchasing process 3 months in advance of making a purchase to give you enough time to evaluate and negotiate.
Step 2 – Meet with vendors
Next, you should reach out to the three vendors on your shortlist. Be up front with them that you are evaluating other vendors to solve the challenge or help with the initiative at hand. This will prompt them to bring their best resources to the table. It also tells them that they stand a chance to win your business if they work hard enough. Bringing many vendors to the table makes all vendors try less because there is a lower shot of them winning anyway, so why try.
As you meet with vendors, you will learn their differences and unique values they bring to your organization, project or problem. You need to keep track of these differences as it will serve you well in the final rounds of negotiation. You need to be clear with your vendors about your timeline, which includes when you plan to make a decision and when you expect to be fully operational with them.
Step 3 – First Round – Initial Pricing
After two or three meetings with a vendor, you should expect to see a quote. After you receive the quote, you should have your first round of discussions with the vendor about it. During this meeting, make sure you fully understand what you’re getting before you enter any rounds of negotiation. If you miss something, it has the chance of ruining your negotiation process.
For example, if you see a product price, enter the final negotiation stages and come to a purchase price, but then find out you need installation, you lose your ground. The vendor will know if you are likely committed to the product at that point and may inflate installation services to regain their position on margin.
Therefore, you need to make sure you ask a lot of questions. Review the proposal and come to the meeting prepared with your questions. You should ask for MSRP pricing and the discounts you are receiving off of MSRP. You should also verify this by doing your own research. Then, kindly thank the vendor for their quote and let them know you need to assess the other vendors before making any decision. Then meet with the other vendors and tell them the same thing.
Step 4 – Fein Disinterest and Let Them Come to You
Believe me when I tell you that your vendors will be knocking down your door after the first meeting and wanting to know where they stand. If they don’t, then it wasn’t going to be a fit anyway. They should be hungry to earn and keep your business. This is a sign how you will be treated after you become a customer. Do not go to them after you met with other vendors and tell them you would like to meet again. Let them come to you to ask for another meeting to review how they stack up against the competition.
Step 5 – Come Prepared and Don’t Expect the World
Before you meet with your vendors again, compare pricing and know how much of a discount to ask for. Don’t go crazy and ask for half off because you probably won’t get it and very likely your vendors won’t take you seriously. Instead, calculate how far off each vendor was in their pricing. Try to determine a reasonable value for the differences in their solutions and the differences in pricing. You need to write down the differences so you are prepared to discuss your reasoning for negotiation.
With technology infrastructure, like servers, storage, and network hardware, the big box retailers out there are trying to earn anywhere between 20 – 35% or more margin. Your goal should not be to take them to the cleaners. Rather, your goal should be to get what you want for a fair and reasonable price while meeting your budget goals. Understand that they are a business too and they need to keep their lights on and feed their families. They will likely not lose money to earn your business.
Step 6 – Second Round – Negotiation
Your next round of meetings with vendors will be to negotiate. Clearly articulate the difference in features the other solutions provided and tell the vendor why you value those differences. They may be willing to compensate by offering more features at no additional cost. Define to them what a deal killer is versus what’s nice to have. This will help them understand if it’s worth it to try offering a lower price point and what they need to do in order to win the business.
During this meeting, the vendor will ask you about your opinion on the pricing. You need to be prepared to tell them how it stacks up against your budget and your goals for the solution. It’s bad manners to share pricing of other vendors and it’s not a good negotiation tactic anyway, so don’t do it — even if they ask. This pricing conversation is between your budget and the vendor you’re talking to and the solution they are bringing to the table.
Make sure that you address contract terms, out-clauses, and automatic renewals. I really despise automatic renewals that require a 60 or 90 day notice or you’re stuck for another year. I would not entertain a vendor that makes that a mandatory part of doing business. I also don’t like multi-year contracts and strict clauses to get out of contracts. It is very common with ISPs to get a multi-year contract that requires you to pay the full term if you exit early. You should make sure to stipulate that if they don’t perform there will be no penalty for exiting early. These contracts have teeth and are enforceable by law so don’t get stuck with something you won’t be happy with.
Step 7 – Conclude the Meetings, Select Your Vendor and Wait
After the second round of negotiation, your vendors should know what they need to do in terms of pricing and value they bring to the table. All you need to do now is wait for them to revise their numbers and get back to you. Based on your evaluation thus far, you should pick your vendor. Now is when we work a little more on pricing.
Once you receive the next quote from your selected vendor, wait. This is a game, and you need to play it. Wait until it gets to the week of their end of quarter or end of year. Don’t totally go silent on them but let them know you are evaluating and should have a decision soon. Very likely, they will come to you with a proposition. You might hear them say something like, “Our end of quarter is coming up and management is willing to get aggressive on pricing”. This is when you tell them to send you their best pricing.
After you receive their best pricing, wait a day or two. After you waited a day or two, tell them you can sign today if they can get you to $X (usually you can get 2-4% more off of the purchase price of the last quote, so base your dollar amount off of that). They may say no and if so, it’s okay to sign it the next day.
Conclusion – There is a Balance to Win-Win Deals
I said it earlier and I’ll say it again. Your goal in this process is not to take advantage and clean out your partners margin. Doing that can result in bad situations. If something goes wrong in the project, a good partner will have made their money and be able to cover small issues so you don’t have to go back to the well for more money. That would make you look bad. If you cleaned out your partner’s margin and they don’t have any fight in them to help you beyond your purchase, you are certainly going to be left fronting any issues that come up.
You also don’t want to be taken advantage of by a vendor partner. And good vendor partner’s don’t price-gouge their customers (price at MSRP or greater). A good win-win deal fulfills your needs and budget obligations as well as profitability for your partner. This should be the aim of both parties involved.
Additional Tips and Advice
- Don’t get angry or upset at vendors during the purchasing process. It will not serve your interests well and will likely get you what we call in the industry, the “jerk price”, which is a premium to offset the expense of dealing with negative, bad attitudes.
- Don’t lie to or mislead your vendors with false information like features that don’t exist with other competitors or non-existent lower pricing. It’s a small world in IT and trust is paramount on both sides of the partnership. This will also result in you getting the “jerk price”.
- Do ask for references if you haven’t worked with a certain vendor in the past. The type of references they provide will help you understand how close they can come to solving your unique challenges. One or two should do. Three may not be a good use of your time.
- Do be a good customer and great to work with. There is nothing that will make a vendor partner work hard for you like having a good attitude and being good to work with. Yelling and screaming is not an effective way to get what you want. Having a good attitude during problems will make your vendor work hard for you. If they don’t, then they are not a good vendor and you should probably not do business with them again.