In the company of e-commerce, your biggest expense is generally COGS (cost of goods sold). And as your company grows, your COGS grows proportionally. So, savings which you can make across the board in this region will become more impactful the bigger your company becomes.
Methods of Payment
This is the easiest way to save on your stock and it is a win-win for both you and the vendor. If the vendor will take credit cards, then get a cash back card (including the American Express Plum Card or a Chase Ink Card). These cards provide 1.0% to 1.5% cash back provided that you pay your invoice in time. If you invest $100,000 on stock on one of these cards, you have just saved $1000. Spend a thousand, and that is $10,000 back in your pocket that goes directly to your bottom line without needing to do any bargaining whatsoever. It is easy money.
If your vendor does not accept credit cards, I suggest offering to pay by check and splitting the difference on the credit card charges. Most vendors do not want you to pay by credit card because they get hit with 2.5%-3.5% in fees (just like we do!) . Give to pay by check in exchange for a 1.5% reduction. They ought to jump at the chance particularly on larger purchases.
Always ask for a discount
“What sort of a discount can I get on this?” Should be your opening negotiating term. In my experience, it works about 50% of the time. And half the time it works, your vendor will provide you a bigger discount than you were anticipating.
With new vendors, I propose taking their initial offer regardless of the fact that nobody ever opens with their very best offer. The main reason is that you’ll have the ability to get larger discounts later on. You’re trying to construct a relationship and to be able to do so, you must make trust in regards to price.
Oftentimes, vendors are worried that you are either going to a) inform their other clients what discount you are getting or b) undercut the retail price. Both these situations will cause endless trouble to your vendor. Give them a reason to keep on giving you greater prices with a) keeping your mouth closed and b) with their reduction to earn more money per sale rather than competing solely on price against your competition.
Just negotiate with decision makers
Never waste your time requesting a reduction from somebody who doesn’t possess the ability to give you a lower price.
Negotiate from a position of strength
In business, you always have to operate from a position of strength. Bear in mind, you’re the client. You have the cash. However, that does not mean that you’ll always have success simply by demanding a discount.
Oftentimes, you have to create a story to earn the discount. You have to highlight the distinctive strengths of your organization and how they are going to make that vendor more money!
Bottom line: All of your vendor’s clients have money. Why should you receive a discount their other customer’s are not? Discover the response to that question and you will be swimming in discounts.
Here’s an example from my company: We take all our own photographs. Oftentimes, these photographs are far better than the producer’s photos. We are going to let them use the photographs in their own promotional material in exchange for reductions.
You might not be able to supply a photography trade-out for reductions. However, are you a massive player in your specialty? If so, you might have the ability to provide unique advertising opportunities for your vendors. Have you got a blog, email newsletter, or Facebook page? Offer to highlight a specific vendor’s product in one of your advertising vehicles in exchange for a discount.
Reviews can come in other forms
Product trade-outs are usually the best way to make discounts from your vendors since it is a huge win for both parties.
Let’s say you wish to buy 100 units of something that costs you $10 per unit and that you resell each unit for $20. That is a $1000 purchase and you would like a 10% discount ($100 off the wholesale price). If you request a straight 10% reduction from your vendor, you probably won’t get it. But even if you did, you have only left $100 on the table your vendor would be begging to give you.
Rather than a straight discount, request 10 free units that will actually net you $200 when offered. Since the vendor’s cost is most likely just $2-$3 per unit, they are simply giving up $20 to $30 instead of $100.
Use payment provisions for better discounts
Many of your vendor’s other customers need terms. Agree to pay in advance and in full in exchange for reductions. There is nothing that a vendor likes better than being paid up front. Because the majority of us deal with credit card purchases online, we have become accustomed to (and oftentime take for granted) that we’re always paid before shipping.
Your vendors waste a bunch of time collecting from their customers. Simply take that burden off their hands by paying up front and they ought to reward you with a discount.
Reputation discounts are your friend!
When you’ve established a positive, long-term connection with your vendors, you need to aim to get a standing discount. This is a discount you get on every order irrespective of its size. This should be negotiated based upon the whole value that you bring to their products.
Most retailers buy 6 weeks ahead of time for holidays. Thus, the most significant gift shows happen in summer time for the Christmas season. Most vendors offer specials in these shows. Even in case you can not make it to the shows, you still need to get those discounts! Just ask!
Christmas Order Discounts
The largest purchases of the year happen for the holiday season. This is your best chance for earning year round discounts and the sooner you begin from the year, the better! These discussions can take a couple weeks, so you don’t need to have the calendar working on your vendor’s favor.
Our normal process is to keep on requesting discounts until we get significant push-back in the vendor. At that stage, we proceed to asking for additional concessions. As an example, if we have gotten to a 15% discount and they won’t proceed any farther, we will suggest our other vendors are offering better deals and that we are not sure we will have the ability to provide their product as much promotional campaign this year unless we receive a bigger discount. Obviously, we must provide our most prominent website property to the products which offer us the best profit margin.
We’ll suggest discounts like free delivery, net 60 payment provisions (along with using our credit card), and that we’d love to find the 15% reduction become permanent going forward. We will also ask if they could throw in a couple of instances for free if they can not go beyond their 15% discount. You likely won’t get everything you ask for, but it is always a great idea to move on to additional concessions as soon as you’ve drained the percentage-off discount.
Negotiations are private. So make them as private as possible!
When negotiating, you need to learn as much as possible about the vendor’s company and their motives.
As an example, If your purchases account for a paltry 1 percent of the vendor’s company, you won’t have the ability to influence them toward a reduction based upon your quantity. You will have to find other ways to bring value to them. Research and study their company to work out how to approach them in terms of reductions. In certain situations, you’ll have no bargaining power. Move on to a different vendor till you’ve got such strength.
You have to research your vendors carefully. You have to speak to them (and if possible, visit their headquarters) and determine what sort of people they are. What are their concerns? Could you be a sounding board for their new product ideas? Be open to sharing sales data together on their goods or other products which you carry which are like theirs. This is extremely valuable information (that would cost them a chance to obtain) which can allow you to build rapport. This will cause discounts later on.
By way of instance, if our vendors introduce a new solution, I’m eager to let them know precisely how many individuals have visited the item page. I will also tell them the conversion rate of the page. If I have felt that the item is very good, but the CR ought to be higher, I’ll run an A/B price evaluation (at my own expense regarding my margins). Imagine how thankful they are when I find a more profitable price point!
By analyzing your vendors, you can determine what’s important to them. You may then create value for them and be repaid in the form of discounts. Are they a newer company that’s concerned about cash flow? If so, offer to pay up front in exchange for a reduction. Is it a new product line? Be the first to market it and give it prominent exposure on your own site in exchange for a reduction.
Bottom line: you should be creative in your discussions. Your imagination will be sparked by experience, study, and personal relationships.