Almost every business relies on supplies, like equipment and raw materials, to keep itself running and eventually turn a profit.
The cost of your supplies will play a massive role in your eventual profitability, determining how much money you make on each new sale, not to mention influencing the cash flow of your enterprise.
Depending on the nature of your business, those supplies could be things like food products (for a restaurant), raw materials (for manufacturers), clothes (for retailers), or something else entirely. But no matter what type of supplies you’re purchasing, there are some strategies that can help you land a better deal.
Group Purchasing
First, you could experiment with group purchasing. Group purchasing is a strategy that brings multiple prospective buyers together so that each buyer has a chance to earn a discount on the products they need.
Suppliers are incentivized to offer a per-unit or per-purchase discount if they’re providing materials to a sufficient volume of buyers. Ordinarily, your business may not be able to buy materials in quantities that would warrant a discount. However, if you add your business to a roster of hundreds or even thousands of other businesses and individuals, you may be able to get closer to your ideal per-unit price.
Bartering
Entrepreneurs can also get a better deal from suppliers by bartering. If you know of another startup that offers something your business needs, and your business offers something that startup needs, you can do a kind of trade. For example, if you’re running a marketing agency and you need printed brochures to advertise yourself, you can work with a printing facility to provide them a new logo design in exchange for those brochures.
Bartering tends to work best with small businesses; it’s easier to get in contact with the decision-maker, and entrepreneurial communities are full of startup founders willing to help each other out. However, this may not be a sustainable relationship in the long term.
Negotiation
One of the best strategies you can employ is negotiating with your suppliers. Suppliers often present you with a fixed quote for their products or services, and it’s tempting to believe that this is wholly unmovable. However, in many cases, you’ll be able to find wiggle room through negotiation.
Depending on the supplier, you may be able to make a compelling counteroffer; just make sure you’ve done your research so you aren’t underbidding to the point of being insulting. You may also request a discount on subsequent purchases?it’s amazing what kinds of discounts you can get just by asking for them. As you get to know your suppliers better, and work with them more regularly, they may become more likely to extend special discounts to you. Negotiate regularly to get the best possible deals.
Bulk Purchasing (and Storage)
Most suppliers are willing to offer a per-unit discount for larger purchases. Accordingly, you may be able to score a better deal if you’re willing to make bigger purchases in advance. For example, you could buy an entire year’s worth of supplies, then store them and use them as necessary.
There are some problems with this approach, of course. For starters, your materials may not be storable (e.g., they may be perishable foods). You may also need to pay additional costs for storage?but they may be worth it if it means saving even more in purchasing costs.
Supplier Switching
One of the more obvious routes to saving money on supply costs is to switch suppliers. There are likely dozens, if not hundreds of viable options for suppliers in your industry. Could one of them offer a better rate? Or could they offer more impressive products and services for a similar rate?
If you have a long relationship with your existing supplier, it’s usually a good idea to try and work with them first; ask them for a discount, or some other incentive for being a loyal customer. If they’re unwilling to work with you, it may be best to move on.
Interest and Fees
Purchasing large quantities of supplies often means tapping into a line of credit, paying with a credit card, or even taking out a loan. Accordingly, you can reduce your total supply costs by reducing the interest and fees you’re paying. Negotiate with your bank to reduce the interest rates you pay on your loans and floating credit, and try to build up enough cash that you don’t have to purchase on credit in the first place.
Once you get your supply costs under control, you’ll be in a much better position to strike a profit. It may take months, or even years, to get your supply costs to where you want them, but the extra effort will be worth it.
