Negotiating with suppliers: a guide for small shops

A small shop does not buy in the volume of a supermarket, so many owners assume there is nothing to negotiate. That is half true. You will rarely win the lowest price. But a supplier wants customers who order often, pay on time, and cause little trouble, and a steady small shop is exactly that.

That gives you a position. Before any conversation, know what you spend with them in a month and how reliable you are. Say so. "I order about $2,000 a month, every second Monday, and I pay on delivery" is a stronger opening than "can I have a discount?".

Negotiate with facts. Pull together these before you talk.

• What you bought from this supplier over the last three months, in dollars.
• Your best sellers from them, and their sales speed. See ABC analysis.
• Your margin on each of their products. See gross profit.
• Any problems: late deliveries, short orders, damaged cases.
• What a competing supplier charges for the same lines, if you can find out.

Then decide your goal and your walk-away point. A small shop rarely wants to leave a good supplier, but knowing you could gives you calm.

Payment terms

Paying 14 or 30 days after delivery, instead of on delivery, is worth real money to a small shop because it eases cash. See cash flow for shop owners. Suppliers often grant terms only after a track record, so build one with a few paid-on-time orders, then ask. Some offer a small discount for early payment, which is worth taking only if your cash allows it.

Case sizes

If the supplier sells in cases of 24 and you only sell 6 a week, you will be holding four weeks of stock. Ask whether they will break a case, sell half cases, or deliver a mixed case across several products. Many will, for a small fee or at a slightly higher unit price.

Price breaks

A price break is a lower unit price for a bigger order. They are tempting. Test each one with the sums below before accepting.

Delivery days

Ask for a fixed delivery day that fits your shop, and a minimum order that is realistic. A reliable weekly delivery lets you hold less stock, because your lead time is predictable.

Credit for damaged or short goods

Agree in advance how damage is handled. How do you report it, within how many days, with what proof, and does it come back as a credit note or a replacement? Do this at the delivery, using your receiving checklist.

Other asks

• A guaranteed minimum remaining shelf life on short-life products.
• Warning of price rises, such as two weeks' notice.
• Support for promotions, such as a temporary price cut on a feature item.
• A named contact who answers.

Your supplier offers 1 L cooking oil at $3.00 a bottle for a normal order of 24, or $2.85 a bottle if you take 72. You sell 5 bottles a day.

The break saves $10.80 per 72 bottles. To get it you hold about $67 more cash on average for the two weeks. If you can use that cash elsewhere to earn more than $10.80 in that time, the break is not worth taking. For a fast seller with a long shelf life and spare cash, it probably is. For something that sells 1 a day, or expires, it is not.

A quick test: the saving, as a percentage of the order, should be larger than what you would lose by holding the stock. In this case, 5 percent saved over 14 days is a good return, as long as you have the cash and the shelf space.

You spend $2,000 a month with a supplier and pay on delivery. You ask for 14 days to pay instead. With four deliveries of about $500, each is paid two weeks after it lands.

Most of the time, you are holding about $500 to $1,000 of their goods that you have not yet paid for. That is $500 to $1,000 of working cash that would otherwise be spent already. It is an interest-free loan, and for a shop whose lowest weekly cash is a few hundred, it matters.

Offer something in return: pay always on the due day, order on a fixed day, and agree a cap, such as terms up to $1,000 outstanding at any time.

A delivery of 10 cases of juice, $18 a case, arrives with two cases crushed. You photograph the cases and note them on the delivery slip before the driver leaves.

The credit is 2 x $18 = $36. Without the note and photos, the supplier can say the damage happened in your shop and you lose $36. Over a year, with one such delivery a month, that is $432 recovered by two minutes of paperwork.

1. Pick the moment. Ask when you are placing a good order or have been loyal for a while, not when you are late paying.
2. Start with what you offer. Your regular orders, your on-time payments.
3. Ask for one or two things. Lists of ten asks get a no.
4. Trade, do not just ask. If you want terms, offer a larger or more regular order.
5. Be friendly and firm. You will deal with this person again next week.
6. Write it down. Send a short message afterwards confirming what was agreed.
7. Review every few months. Terms drift.

• Judging a deal by the discount percentage alone, not by the cash you tie up.
• Taking a price break on a product that expires or sells slowly.
• Relying on one supplier for everything. A second source gives you something to compare.
• Paying late without telling them. It costs you the goodwill you need.
• Agreeing verbally and never writing it down.
• Forgetting delivery costs. A cheap unit price with a high delivery fee may not be cheap. Add it into landed cost.

Shopkeepa's restock list suggests an order quantity for each product at its minimum, which gives you your own numbers to bring to the conversation. Shopkeepa is in development, and you can join the early access list. See low-stock reminders.