Your relationship with your wholesale supplier is critical to your success as a retailer. Unless your agreement with your wholesaler is favourable, you will not be able to sell at a profit.
Equally important, your wholesale supplier must be reliable so you can fill orders according to your published time lines and customers delivery expectations.
Establishing and maintaining the right relationship with your supplier requires skill, preparation and a very good understanding of your needs and your suppliers' needs. A well negotiated agreement is a win for both sides.
However, there is a caveat. If you are a new retailer with little or no credit history, trade references and the understandable desire to start purchasing in small quantities, your ability to negotiate is very limited.
In general, you are asking the wholesaler to risk the time to set up an account with you, an unproven business.
Understand the Wholesale Supplier's needs.
Wholesale suppliers buy and inventory products based on their expected sales volume to retailers. A significant part of their reputation rests on being 'in stock' for orders so they are constantly balancing the need to be stocked with the need to minimise cash tied up in purchase and management of too much inventory. Wholesalers make money on the markup they charge on products sold.
Wholesalers reps are tasked with finding and establishing accounts with retailers to distribute their products. Sales reps are usually rewarded by making a commission on sales so they are interested in adding retailers to their list. Most sales reps have some flexibility in the terms they can offer a retailer. For example:
- There may be 5 to 30 percent or more flexibility on pricing that can be awarded based on volume purchased, exclusivity, promise of repeat orders, faster payment and so on.
- Payment terms are typically net 30 but can sometimes be extended to net 60. (Net 30 means that you have 30 days to pay for merchandise that you buy, giving you time to sell the products before you have to pay for them.)
- Shipping and delivery can sometimes be expedited.
- Some customers can be given priority on filling back orders.
- Extended product warranties are sometimes available.
Most sales people have closing dates for hitting sales goals. The closer they are to that closing date, the more motivated they are to make sales. Closing dates are often quarterly.
Sometimes the sales rep is less interested in maintaining a specific profit margin than in taking on new business in a particular marketplace. Under those circumstances, there are sometimes additional opportunities for making a better deal.
However, as much as sales reps want to do business, they can not do business if the retailer demands concessions that are outside of their parameters. Sales reps are also reluctant to do business with retailers who are difficult to work with because it takes too much time to keep them happy.
Bottom line, there is room to negotiate with suppliers, especially over time if your business with them grows. However, there are limits to concessions that can be made and as with any relationship, you will get much further with a positive, respectful approach.
Prepare for the negotiation.
The better informed and prepared you are, the more likely you will be to succeed in any negotiation. Study the wholesaler's product and price list. Recognise that individual products may work differently in your business. Be as well informed as possible about what volume of orders the wholesaler can expect from you.
What do you need from your wholesale supplier?
Everyone wants a lower price, of course. What is the discount you need to make your business work? What can you do without? For example, if the wholesaler offers payment net 30, can you offer net 15 in exchange for a price consideration?
Frankly, you will not know if that is a possibility for you unless you sit down and look at your own sales record, your cash flow, the seasonality of your business and so on. Do the analysis ahead of time so you know your own parameters, you can be sure that the sales rep knows his.
Research the Alternatives.
There are usually alternatives for sourcing your products and you need to know what they are for several reasons. First, it is helpful to be able to point to a competitor's willingness to negotiate. For example, 'I am very interested in placing my business with you. I like your products and services and I can work with your terms. My problem is that XYZ Company is giving me x percent more discount on substitutable products, I need that break to make my own business numbers work. Is there any additional consideration you can give me?'
Variations might be, 'What would it take to get to X percent discount?' or 'I am certain enough of my ability to sell this product quickly that I can offer you payment in net 20 instead of net 30 in exchange for the price concession.'
Second, you need to have backup suppliers in place or able to be in place quickly in case there is a problem with your primary supplier.
Time to negotiate.
Now that you have done the initial work, you are ready to have a discussion with your wholesale supplier.