How to Reach a Fair Market Deal

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By Jill Button, President & CEO ProcurePro Consulting

Achieving a fair market deal is the cornerstone of building successful, long-term supplier relationships while safeguarding your organization’s financial health. But what does a fair market deal actually mean? At its core, it means ensuring that you’re not overpaying for goods and services—avoiding situations where you’re charged $20 for a pen that could cost you just $2 elsewhere. To achieve a fair market deal with your suppliers, you need to approach procurement strategically, leveraging tools, data, and negotiation tactics to ensure your prices are competitive and justified.

The Importance of Market Research

The foundation of a fair market deal lies in understanding the market. How do you determine if the price you’re paying is reasonable? By comparing prices and conducting thorough market research. In today’s digital age, this is easier than ever. You can quickly Google a product, check reviews, and compare prices across suppliers in seconds.

When making purchasing decisions, particularly for high-value items, online tools and resources can be invaluable. For example, if you’re buying a vehicle, platforms like Autotrader provide detailed data on vehicle prices, factoring in aspects such as make, model, mileage, and condition. Similarly, in procurement, you should lean on available market data to understand price trends, industry standards, and supplier offerings.

Learning from Experience: Then and Now

Reflecting on past purchasing experiences can shed light on how far the procurement process has evolved. For instance, when I bought my first car, there was no internet. Instead, I relied on a resource called “The Black Book,” which listed vehicle prices based on various criteria. It gave me clarity on what I should expect to pay, eliminating the guesswork.

Fast forward to today, and technology has made such information widely accessible. The same principle applies to supplier negotiations. Before entering into a deal, use online databases, supplier directories, and industry benchmarks to gather the information you need. This knowledge allows you to identify whether you’re getting a great, reasonable, or subpar deal.

Factors That Affect Pricing

Reaching a fair market deal is not just about comparing raw numbers. Various factors influence pricing, and understanding these variables can help you negotiate more effectively. Here are some key considerations:

  • Volume Discounts: Larger companies that purchase in bulk often receive better pricing due to economies of scale. However, as a smaller buyer, you should focus on securing competitive pricing for your size while emphasizing potential growth opportunities.
  • Seasonal Incentives: Year-end incentives, promotional discounts, and clearance sales can significantly impact pricing. Be strategic about timing your purchases to take advantage of these opportunities.
  • Supplier Investments: Suppliers may offer better terms if they see your company as a promising long-term partner. Highlighting your growth potential and loyalty can help secure more favorable deals.
  • Market Conditions: External factors, such as raw material costs, labor shortages, or economic fluctuations, can influence prices. Stay informed about these trends to understand pricing shifts.

Why Fair Doesn’t Mean Equal

A critical aspect of fair market pricing is recognizing that “fair” does not always mean “equal.” Imagine two companies purchasing from the same supplier:

  • Company A buys 10,000 units annually.
  • Company B buys 1,000 units annually.

It’s unreasonable for Company B to expect the same price as Company A. However, Company B can negotiate pricing that is competitive for its size, potentially securing slightly better terms by emphasizing factors like consistent demand or future growth. On the flip side, if Company A is paying the same price as Company B despite its significantly larger volume, it’s Company A that’s getting a raw deal.

The goal is to strike a balance—ensuring that the pricing reflects the value and volume your business brings to the table while being competitive within the market.

Negotiation Strategies for a Fair Market Deal

Once you’ve conducted your research and understood the factors affecting pricing, the next step is negotiation. Here are some actionable strategies to help you secure the best possible deal:

  1. Do Your Homework: Come to the table armed with data. Know the market rates, competitor pricing, and the supplier’s typical pricing structure.
  2. Leverage Relationships: Build strong relationships with suppliers by being transparent about your needs and showing commitment to a long-term partnership.
  3. Highlight Value: Emphasize what makes your business valuable to the supplier. Whether it’s future growth potential, consistent orders, or willingness to collaborate on innovation, make your case compelling.
  4. Negotiate Beyond Price: Consider other terms, such as payment terms, delivery schedules, or additional services, which can add value without necessarily lowering the price.
  5. Know When to Walk Away: If a supplier isn’t willing to offer a fair deal, be prepared to explore alternatives. Having multiple options strengthens your negotiating position.

Building Long-Term Supplier Partnerships

Achieving a fair market deal isn’t just about the immediate transaction; it’s about building a sustainable partnership. Suppliers are more likely to offer favorable terms to customers they trust and value. Here’s how to foster such relationships:

  • Communicate Openly: Keep suppliers informed about your business’s needs, challenges, and goals.
  • Honor Commitments: Deliver on your promises, whether it’s meeting minimum order quantities or adhering to payment terms.
  • Collaborate on Solutions: Work together to find mutually beneficial solutions, such as co-developing products or streamlining processes.
  • Provide Feedback: Constructive feedback helps suppliers improve their offerings and demonstrates your investment in the relationship.

The Bottom Line

Reaching a fair market deal is an art and a science. It requires diligent research, a clear understanding of market dynamics, and strategic negotiation. By focusing on fairness rather than equality and emphasizing long-term value, you can avoid overpaying and build strong, productive supplier relationships.

Remember, the goal isn’t just to save money but to create a win-win scenario where both your company and your suppliers thrive. By adopting these practices, you’ll position your business for sustained success while ensuring you never get “screwed” by your suppliers.

This article is based on insights from the book, How Not to Get Screwed by Your Suppliers and Save Millions. By Jill Button. Print and Kindle editions available on Amazon.

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For more information about ProcurePro Consulting visit www.ProcurePro.ca