How to get the right price from your suppliers

Finding good suppliers for your small business is easier said than done, so once you find one that meets your needs, it’s tempting to rest on your laurels. There’s nothing wrong with that - as long as they remain reliable and affordable. But if you have concerns over their reliability or rising costs, it might be time to review your supply chain. 

Here’s a short guide on how to regularly assess your suppliers and ask yourself if you're still getting a good deal.  

Check your reports

Firstly, you need to understand how your supply costs fit into your overall finances. Time to pull up a few reports. 

The Spending Categories report in FreeAgent is great for zooming in on your costs. You can take a look at which categories you’re spending most on and compare this with the previous year. Are there any categories that have changed significantly? This could be a sign of the times, but it could lead you to opportunities to save money. 

Similarly, the Performance Benchmarking report will let you compare your quarterly costs with similar businesses. This’ll help you deduce whether your costs are in line with the industry average. 

Ask for a cost breakdown

If you decide to ask for a quote from your suppliers, you might be curious what makes up the final amount - this is called a cost breakdown. This can help you decide whether the supplier offers good value for money, or even spot cost-cutting opportunities within the quote. You have every right to ask both new and existing suppliers to explain how they’re calculating your quote - however, this can sometimes create some tension in your relationship.

These tactics can help ease the conversation: 

  • Requesting the cost breakdown as part of the initial quote - the earlier they understand that this is a requirement for working with you, the easier the conversation. 
  • Telling them transparently why you need the cost breakdown - for example, if you do need to cut costs, they might prefer to reduce certain costs rather than lose your business altogether. 
  • Emphasising your loyalty - if you’ve been with the supplier a long time, you might reference the positive relationship you’ve built. 
  • Taking it up the hierarchy - talking executive-to-executive if needed.
  • Pointing out the benefits to them - for example, you might present it as an opportunity to share any savings you can spot.

Calculate the cost of changing suppliers

Even if you’ve shopped around and found an alternate supplier offering better prices, you need to calculate the true cost of changing suppliers. The true cost will factor in the savings per year as well as the potential disruption to your business during the changeover period or while working with the new supplier.  

You might find that the value of the savings aren’t worth the disruption to your business - or you might find that you can mitigate the disruption and ensure the savings get transferred to your business finances. 

Negotiate costs with your suppliers

If you decide none of your quotes are quite right, you might want to negotiate with either your existing or new suppliers. To set up a negotiation for success, you need to know what you want to get as well as understanding the value of your business to your supplier. 

Do you know what proportion your business makes up of their annual income? If you make up a high proportion, you’ll have more negotiation power - but don’t despair if you don’t! 

There are other ways your business could have value to your suppliers. Maybe you reliably pay your bills on time, or you would be happy to be locked into an annual agreement of work, giving them a guaranteed income each month? Think outside the box to consider what you have to offer in return for more manageable costs. 

FreeAgent is a great tool when you’re looking to get your finances in order, giving you detailed reporting that helps you make great business decisions. Get a 30-day free trial and dive into simpler decision-making.

Related Articles