The word “negotiation” has different implications for different people. In fact, when you just read the word, some of you probably envisioned a heated exchange around a big boardroom table. But then, after high tensions and even higher blood pressures, one party walks away the victor, and the other walks away, well, 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.
Remember, everyone wins.
Negotiation doesn’t have to be something you dread. It shouldn’t be. 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, regardless of background, can walk into their next meeting empowered.
According to The Chartered Institute of Procurement & Supply (CIPS), there are seven stages in a contract negotiation process:
Preparation is your friend, both in life (but we’ll leave that to the life coaches) and in procurement negotiations. Thorough prep work might just be the most important stage of all. This is where you and other stakeholders gain the confidence and clarity needed to nail a negotiation meeting.
So, how should you prep? Here are some questions to ask yourself as you do your negotiation homework:
If you do a thorough job preparing, the next few steps will be a piece of cake (or donut, if that’s your thing).
Since you’ve done your prep and planning work, there shouldn’t be any big surprises during the opening stage. This is when your team and the SaaS supplier’s team should state the goals of the negotiation. Then, if you discover that the supplier’s goals 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 like when you’re in a restaurant and the server repeats your order back to make sure they got it right. It is easier to correct the order before the chef cooks the meal.
Listen up. Seriously, active listening is probably the single 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.
The Institute of Supply Management reports that high-performing negotiators ask three times as many questions but talk two-thirds less than their counterparts. That means:
This is how you 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.
During the proposing stage, 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 proposal based on the new understanding you’ve just gained.
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 some compromises.
This is where you’ll both 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? It’s time to put those to use.
Flexibility and openness to change are key during the bargaining stage. The “my way or the highway approach” in negotiating is rarely an effective one. Instead, be willing to shift your perspective and approach, if needed, and the supplier should do the same.
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. 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 to avoid a future breach of contract.
Finally, the moment you’ve been waiting for. The closing stage simply includes ensuring both parties have access to the written agreement and then calling the procurement negotiation strategy complete.
Congratulations, you did it!
Most of us can probably admit that we immediately think of saving money when we think of negotiation. Of course, we all want to buy SaaS products for less. And indeed, saving money is a great thing, but there are other advantages of negotiation in procurement.
In addition to lowering pricing, a negotiation may help you avoid 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. For a SaaS buyer on a budget, this could really throw off a project. The negotiation process gives ample opportunity to uncover this type of oversight.
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.
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). But sometimes, SaaS suppliers have other agreements, too.
Most likely, by the time you get to negotiating, you’ll already be aware of any supplier contracts. Still, the procurement negotiation process is the perfect time to iron all of that out if you're not.
Essentially, your goal may be to incorporate the supplier’s contract into the master contract you mutually agree upon. Then, include a clause that reflects the terms of the master contract taking precedence over any other agreements if there are any contradictions.
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 of those things are value-added benefits that give you, the customer, a chance to voice your opinions and feedback. It also provides the SaaS supplier with an opportunity to hear your feedback and consider enhancement updates.
Another value-added benefit to a successful contract negotiation is the creation of a long-term relationship with each supplier.
Here are some expert tips to enhance your procurement negotiation skills.
The procurement negotiation process isn’t personal, even though you’ve personally 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. Remember, everyone needs to win.
Few negotiations will go exactly 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.
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 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. Embrace the silence.
Not every negotiation will go perfectly, and most likely, they’ll all be different in some way. Use every negotiation as a learning experience. Take notes so you’ll know where to improve next time. The more you do it, the better at it you’ll become.
If you’re interested in more negotiation tactics, take a look at our best practices for software negotiation.
Another thing you can do to set yourself apart as a skilled negotiator is to imagine the negotiation process through the supplier’s eyes. For supply chain professionals juggling large SaaS stacks, it’s common to focus on short-term metrics and zero-sum negotiations due to a simple 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 a significant amount of time and effort learning your key business requirements, your key 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?
Give some thought to 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.
Becoming the best at the best and final offer means that everyone must win. Learning to create or enhance a well-researched, adequately planned, flexible, and empathetic negotiation process will bring many advantages to you and your organization.
But if negotiating just isn’t for you or you simply don’t have the resources, we can help. Get in touch with Vendr to see how we can help take SaaS procurement negotiations off your plate.
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