An Overview of the Procurement Negotiation Process + How to Navigate It

The word “negotiation” has different implications for different people. When you read the word, you may have envisioned a heated exchange around a big boardroom table. After high tensions and even higher blood pressure, one party walks away as the victor and the other as the loser.

But a successful procurement negotiation isn’t about claiming victory or waving the white flag; it’s about building strategic relationships and creating a win-win situation.

Negotiation in purchasing doesn’t have to be something you dread. On the contrary, there are many advantages to successful negotiations in procurement.

We’ll break down each step in the procurement negotiation process so that anyone at your company can walk into their next meeting empowered, regardless of background.

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The seven stages of procurement negotiation and why they matter

According to The Chartered Institute of Procurement & Supply (CIPS), there are seven stages in a purchasing contract negotiation process:

1. Preparation
2. Opening
3. Testing
4. Proposing
5. Bargaining
6. Agreement
7. Closure

Stage 1: Preparation

Preparation is your friend in procurement negotiations. In the critical preparation stage, you and other stakeholders gain the confidence and clarity to nail a supplier negotiation meeting.

Here are some questions to ask yourself as you do your negotiation homework:

• Are the goals and objectives of this SaaS product aligned with our internal priorities?
• What is the budget limit for this purchase?
• Have we researched this supplier and their proposed solution thoroughly?
• Are there essential questions we need to ask the supplier?
• What are important factors other than price?
• Are there things we could compromise on that will not negatively affect the supplier or us?
• What information do I need to take from this to report to the Chief Procurement Officer, CFO, or ultimate decision maker?

Stage 2: Opening

Since you’ve done your prep and procurement planning work, there shouldn’t be any big surprises during the opening stage. The opening stage is when your procurement team and the SaaS supplier’s team should state the goals of the negotiation. Then, if you discover that the supplier’s plans for the meeting are entirely different from yours, all parties will know it before there is a chance for misunderstandings to create tension.

Think of the opening stage as similar to when you’re in a restaurant, and the server repeats your order to ensure they heard it correctly. It is easier to correct the order before the chef cooks the meal - and it’s easier to manage a negotiation when everyone is on the same page.

Stage 3: Testing

The testing stage of your negotiation is where both parties understand what is essential to each other and where the buyer and seller can make concessions.

Active listening is the most powerful tool in your contract negotiation toolbox. During the testing stage, you and the supplier should ask questions and actively listen to the answers.

Active listening is how procurement professionals gain understanding (which also builds leverage) by learning what is truly important to the supplier. In addition, knowing what’s important helps you understand where they may be willing and able to compromise.

Stage 4: Proposing

During the proposing stage of your negotiation practices, you get to propose to the supplier what you’d like to achieve, and they’ll do the same.

If you’re in an actual face-to-face meeting and you’ve learned things during the opening and testing stages that require you to modify your intended proposal, it is perfectly OK at this point to request a quick break. Give yourself a few moments, if needed, to shift your bid based on the new understanding you’ve just gained.

Stage 5: Bargaining

You may skip right over the bargaining stage if all goes smoothly and both parties agree with the proposal. But if not, during this stage, you and the supplier will consider making compromises.

The bargaining stage is where you’ll revert to the knowledge you gained during the testing stage. Remember how you used active listening to identify areas the supplier may be willing to compromise?

Flexibility and openness to change are essential during the bargaining stage. The “my way or the highway approach” in negotiating is rarely effective. Instead, be willing to shift your perspective and approach if needed, and the supplier should do the same.

Stage 6: Agreement

Whether the negotiation happens in person or on paper, this stage is where both parties reach a desired outcome.

While handshakes are fantastic, the bottom line is they aren’t legally binding, and we don’t recommend them in place of an official agreement. Instead, make sure the deal is in writing and signed by both parties. Oftentime, parties will make incremental edits to the contract and store these changes in a single repository using document version control to track how the contract changes over time. People come and go in their jobs, and if the supplier’s representatives you’ve negotiated with leave the company, a written agreement will help avoid a future contract breach.

Stage 7: Closure

The closing stage simply includes ensuring both parties have access to the written agreement and then calling the procurement negotiation strategy complete.

4 benefits of the procurement negotiation process

Most of us can probably admit that we immediately think of saving money when we think of negotiation. And indeed, saving money is a great thing, but there are other advantages of negotiation in procurement.

Reduce costs

In addition to lowering pricing, negotiating may help you reduce costs. How? In various stages of the negotiation process, there are opportunities to uncover issues.

For example, let’s say your SaaS implementation includes a third-party integration, and that third-party charges a fee for integration that your supplier did not include in their quotation. This change in cost could throw off a project for a SaaS buyer on a budget. The negotiation process gives ample opportunity to uncover this type of oversight.

Make it easier to track key performance indicators

Are there key performance indicators (KPIs) you’ll need to report to leadership to illustrate the effectiveness of your new SaaS product? If so, including those KPIs in your negotiation proposal helps you ensure the supplier can deliver the KPIs but also helps you to discover if you should be looking for different KPIs.

Consider other contracts

You and the supplier worked hard to develop a mutually favorable agreement, and you’ll probably refer to that as your master contract or service level agreement (SLA). However, there may be additional contracts outside of your master agreement to consider.

Most likely, by the time you get to negotiating, you’ll already be aware of supplier contracts. Still, the procurement negotiation process is the perfect time to iron everything out if you're not.

Essentially, your goal may be to incorporate the supplier’s contract into the mutually agreed upon master contract. Then, include a clause that reflects the terms of the master contract taking precedence over any other agreements if there are any contradictions.

Identify ways to add value

There may be some value-added benefits with this supplier and SaaS product revealed during the procurement negotiation. For example, perhaps you weren’t aware of their customer panel or annual conference. Both are value-added benefits that give you, the customer, a chance to voice your opinions and feedback. It also allows the SaaS supplier to hear your feedback and consider enhancement updates.

You may also be able to negotiate your payment terms, which could provide both short- and long-term value to your bottom line.

Another value-added benefit to a successful contract negotiation is creating a long-term relationship with each supplier.

Tips for a successful procurement negotiation

Here are some expert tips to enhance your procurement negotiation skills.

Leave your ego at the door

The procurement negotiation process isn’t personal, even though you’ve worked hard to prepare for it. Replace any defensiveness or negativity with empathy. It is critical to avoid giving the supplier the impression that you’re willing to trick or exploit them to get what you want.

Be open-minded and flexible

Few negotiations will go as planned, and that is A-OK. Avoid a “set in stone” mindset by focusing on active listening and shifting your approach as you gain further understanding.

Here are some tips from the negotiation training ground:

Observe the room

If this is a face-to-face meeting, look around. Do others generally seem comfortable and positive?

Body language is powerful in detecting negative emotions. If you discover negative body language, former FBI hostage negotiator Chris Voss says to diffuse it with tactical empathy.

Silence is golden

Silence can feel incredibly uncomfortable in a negotiation. But here’s a secret, your periodic silence might just encourage the supplier to speak more or give you both more time to think.

Practice makes perfect

There is no ‘common negotiation.’

Not every negotiation will go perfectly; most likely, they’ll all be different. Use every negotiation as a learning experience.

If you’re interested in more negotiation tactics, look at our best practices for software negotiation.

Understanding a procurement negotiation through a supplier’s eyes

Another thing you can do to set yourself apart as a skilled negotiator is to imagine the negotiation process through the supplier’s eyes. Supply chain professionals juggling large SaaS stacks expect to focus on short-term metrics and zero-sum negotiations due to a lack of time. But the supplier will not likely approach this negotiation in the same way.

You can almost guarantee that the supplier will spend significant time and effort learning your essential business requirements, your fundamental interests, what you’re seeking, and even your personality style.

They will research to the fullest extent to determine why you are seeking their product. Is this something new intended to streamline manual processes? Is it replacing an existing SaaS product that isn’t working out? Has a current supplier proposed contractual changes that are unfavorable?

Consider what your supplier might be doing to prepare for negotiations with you. Understanding this will help you approach the procurement negotiation prepared and with empathy. Making this an ongoing practice will build strategic supplier relationships.

The advantage of Vendr’s procurement negotiation skills: Everyone wins

Procurement negotiation can be a difficult and time-consuming process. This is especially true if you don’t have experience and know the ins and outs of the negotiation process. Additionally, if you don’t have specific knowledge about the type of tools or product that you’re negotiating for – such as competitors, price benchmarks, and market trends – it might feel like you’re going into the negotiation at a disadvantage.

If you still want to get the best deal but don’t have the time or patience to go through the motions of negotiating, you can consider outsourcing your negotiations. Negotiation professionals bring the domain expertise and strategic knowledge to maximize your leverage and negotiate the most favorable terms.

Vendr's team reviews and negotiates hundreds of deals on behalf of clients, gaining companies leverage and helping them save thousands on SaaS.

If your SaaS software procurement could benefit from data-driven negotiation and in-depth expertise, talk to a Vendr expert and set up a free software savings analysis.