In any relationship, there is a certain amount of give-and-take. At times like these, however, the buyer and supplier relationship may involve a bit more compromise as buyers try to renegotiate a better deal and suppliers try to save their bottom line without losing a customer. Renegotiating contracts is never an easy thing, but it can be made smoother if the bargaining parties approach it with the right attitude and accurate information.

"The best approach to renegotiation under these circumstances is 'we're in this together'," according to sourcing advisory firm EquaTerra. "[J]ust as your organization may now have strong reasons to renegotiate, your service providers have every incentive to keep you as a customer. So, if you come to the table well prepared — and willing to 'give to get' — you can reasonably expect to re-balance your current contracts to achieve urgent business objectives."

Before approaching negotiations, buyers must first do some legwork. EquaTerra suggests buyers first define their strategy for surviving these turbulent times. Once they have a list of desired outcomes, they should screen the goals against their current contracts to determine how they can re-balance the mix of services, service providers and agreements through renegotiation. Don't be afraid to review every contract, Mike Opdahl, manager of wine importer and distributor Joshua Tree Imports, tells Inc.com.

Secondly, buyers must gather information about their suppliers and their suppliers' pricing models. Find out your suppliers' financial situation, any recent upheavals and if they lost any big contracts, EquaTerra says. "Knowing these things can provide insight into what your service providers' bargaining positions may be and what may motivate them."

Buyers should also find out what other companies paid for the same goods and services. "[Y]ou'll have a much better chance of lowering costs," Ken Hagerstrom, CEO of business consulting firm Expense Reduction Analysts, tells Inc.com.

Says Supplier Excellence: Approach the discussion "armed with raw material and market data. ... Showing the specific data and the calculated new price justifies your request and gives you a fighting chance."

Buyers should keep in mind that they will most likely need to make accommodations as well. Both sides should strive to work out contracts that are mutually beneficial. Here are some ideas for scenarios in which both parties can "win."

Early Payments for Lower Rates
"If you're a fast payer, you can negotiate lower rates with your vendors to help [them] with their cash position," Carl Gould, president of small-business consulting firm CMT International, explains to the Wall Street Journal (subscription required). Consider offering to pay within 10 days of product or service delivery in exchange for a discount, the Caller-Times recommends.

Price Reductions for Previous and Future Price Increases
If the supplier previously passed on commodity price increases and those commodities are now at a lower price, remind the supplier that you agreed to the price increases earlier but now expect reductions to reflect their lower costs, the Caller-Times says. Estimate how much that lower cost should be and negotiate to attain the desire price.

If you've been a longtime client, emphasize that you remained loyal during up cycles when prices rose and will continue to be a customer during the next up cycle.

Offer All Business in Exchange for a Discount
Buyers with multiple suppliers for certain products or services could consider asking one supplier to be their exclusive provider for that product or service in exchange for a discount. The supplier's sales may be down — something buyers can find out during the research stage — and thus may be willing to discount prices to increase sales, the Caller-Times notes.

Increase Order Volume or Contract Length for a Price Cut
Another strategy for lowering costs is to increase order volume in exchange for a discount, business advisory Gratis Guidance suggests. Alternatively, if dealing with a long-term fixed price contract that is currently unfavorable, Supply Excellence recommends renegotiating a lower price in exchange for a longer contract length. "This also is a good chance to add in a price adjustment clause if one does not exist presently," Supply Excellence says.

Once a new contract has been hammered out, ensure that you are happy with it going forward and that there aren't any amendments you don't want or don't know about, Gratis Guidance warns. Before you seal the deal with your signature, make sure the only changes made are the ones you know about. In the end, both sides must be happy with the new deal.

"The intent is to forge a common understanding of possible solutions and then find ways to converge on acceptable outcomes," EquaTerra notes. "And keep in mind, business is cyclical. Weathering adversity together often forges strong bonds that can prove advantageous when times change."

Related: How to Make the Relationship Work

Resources

Renegotiate — The Right Way, Right Away
by Mark Robinson
EquaTerra

Renegotiate That Contract
by Alexandra Johnson
Inc.com, April 20, 2009

Small Businesses Cut Costs by Renegotiation
by Raymund Flandez
The Wall Street Journal, Jan. 20, 2009

Strategies for Renegotiating Contracts in a "Buyer's Market"
by Mike Petro
Supply Excellence, Jan. 23, 2009

How to Change the Small Print in a Contract
Gratis Guidance, May 22, 2009

Renegotiate Supply Prices and Leases to Save Money
by Ralph Coker
Caller-Times, March 3, 2009