Negotiating with Procurement

Negotiating with Procurement: What You Need to Know

If you’re an entrepreneurial company selling to bigger companies, you need to understand how negotiating with Procurement professionals really works. It’s vital that you understand their unique needs and how they are different from other stakeholders. 

In this guide, I’ll break down the most common pitfalls of negotiating with procurement, the tactics to watch out for, the mistakes that are too often made, how you can prepare, and secure more profitable deals for your business. Every time.

To improve your deal conversion rate and get better outcomes, these are the key things you and your sales teams need to understand:

  • Procurement have different objectives to your main decision-maker, so you must treat the negotiation differently.
  • They are another important stakeholder to engage in the “business unit buyer” map. Have a look at this video with Ray Makela for further insights selling to procurement.
  • Ideally, engage with them 12-24 months before you bid for a big piece of work.
  • Negotiation is a trainable skill, not a genetic trait. It’s seriously worth investing in high-quality training.
  • Use the Procurement Equation© to work out what Procurement are trying to achieve.
  • 80% of your success in a negotiation will come from the quality of your preparation.

If you apply the tactics and lessons in this article, you’ll make better deals immediately and win more opportunities. I’ve refined these insights over hundreds of deals negotiated worth over £400m, with experience on both sides of the table.

Why should you read this guide?

Think back to a time when you were working on a big sales opportunity.

Does this scenario look familiar?

  • You’re close to agreeing on the terms at a price you can work with.
  • Just as you’re about to close the deal, your contact emails you: “By the way, “you’ll just need to get this past Procurement”.
  • Your heart sinks! The last time this happened the deal collapsed and six months of sales effort went down the drain.

Hence, negotiating with Procurement professionals is different. They are different personality types to your typical decision-maker. They have different objectives and very different ways of working. If you want to succeed at winning deals with bigger companies, you need to develop new strategies for dealing with Procurement stakeholders. It must become a standard part of your sales management process and sales training. If in doubt, find a sales coach to act as a sounding board.

I wrote this guide to help you understand the complexities of negotiating with Procurement professionals during a sales cycle. You can use it as a practical tool to re-frame your discussions with Procurement and get the outcome you want.

Problems faced by entrepreneurs, sales professionals and SMEs when negotiating with procurement

When you first meet Procurement professionals during a sales cycle, you will come across new challenges to getting a deal done. If you go in unprepared, you’ll quickly see the deal collapse. Or, you’ll walk out with a bad deal for you and, ultimately, the client.

What’s the problem? Procurement teams have a different agenda to the main person you are selling to. You need to see the world from their perspective in order to know how to deal with them.

Have you faced any of these problems when trying to get a deal through procurement during your sales negotiation?

  • Procurement seem to be creating unnecessary barriers to getting the deal done
  • The RFP process is crazily bureaucratic
  • You feel like you are being used as a price bench-marking tool as opposed to a real contender
  • It can take months to fill in the RFP and go through the process only to find out you didn’t really stand a chance in the first place
  • You can’t see the criteria they are using to select the supplier
  • The contractual terms they send you are outrageous and 30 pages long
  • The T&Cs say “these terms are non-negotiable… If you are successful in bidding, these T&Cs are legally binding on your appointment”

Your first reaction is often outrage. What you do next and how you behave will have a significant impact on your success.  To understand Procurement’s perspective, let’s look at the Procurement Success Equation©. These relate directly to the objectives of procurement in negotiation.

The Procurement Success Equation©

Procurement success equation

Let’s start by considering the question:

“What does success look like from the perspective of a Procurement Professional”?

The reality is: when a Procurement professional is negotiating a deal, they’re managing a number of complex variables – they’re not just being difficult for the sake of it.

The relative importance of each variable is different on every deal they negotiate.

Procurement’s objectives are to:

  • Increase savings on a deal.
  • Maximise ROI for the business.
  • Access innovative solution providers.
  • Improve the quality of service delivery, or as a minimum, maintain it.
  • Improve/maintain the reliability of service delivery.
  • Review the sustainability aspects of what they buy.
  • Reduce risk to the organisation (i.e. reputational damage, operational disruption, financial distress, etc).

There is no simple, single answer to the question “What does success look like from the perspective of a Procurement Professional”? Like any other sales process, you need a clear value proposition when negotiating with procurement.

Later in the guide, you’ll learn how to work out what is really going on, and some insights about what you can do about it.

Common myths about negotiating with Procurement professionals

Perception
They only care about beating me up on price.
Perception
They don’t care about innovation and creativity.
Perception
The RFP is only used to beat up the incumbent supplier, we are never going to win.
Perception
The T&Cs sent by Procurement are non-negotiable.
Reality
This is untrue. It’s about how much they paid last year, how much is in their budget and how they can maximise ROI to the business.
Reality
This is untrue. Innovation and creativity have been on the top 10 list of Procurement challenges for the last decade.
Reality
This is untrue. There are easier ways to do this than run an RFP Process.
Reality
This is untrue. There’s a secret no-one tells you… the schedules at the back of the Ts&Cs usually override the Master Agreement, so put your variations in there.

So, next time you are frustrated with Procurement, take a breath and look at it from their point of view. The underlying issues are much more complex than it appears on the surface.

What are Procurement Levers and why are they important to you?

Whenever I negotiate a large deal, I always think about which levers I am going to use to get the deal done. These are the kinds of levers, or negotiation tactics that I think about for every deal:

  • Consolidating spend across several suppliers and vendors?
  • Offering longer-term commitments in exchange for better prices?
  • Completely transforming the services we are buying?
  • Tightening/de-scoping specifications
  • Reducing demand (also called Demand Management)?
  • Getting some more competitive tension going in the process?
  • Changing the commercial model of the supplier?
  • In-sourcing or out-sourcing different parts of the value chain?

Way before you meet me, I have multiple levers I have thought about to deliver the Procurement Success Equation©.

What are Procurement looking for and what is on their mind when negotiating?

Imagine you’re down to the last two suppliers shortlisted for a piece of work. When you’re preparing to negotiate, these are some of the things to consider before engaging in the next round of discussions:

  • Where are the savings going to come from?
  • What contractual clauses are important?
  • How are you going to measure that you are delivering a high-quality service and what happens if you don’t?
  • How are you going to govern (control) this contract and what are the remedies and rewards for under/over delivery?
  • Does price change as the volumes go up/down?
  • Are there any rebates baked into the deal?
  • How will Service Credits work?
  • What are the termination clauses?
  • What is the contract duration?
  • Payment terms?
  • Who owns what IP?
  • How will you demonstrate the business ROI?

When preparing for your negotiation, have answers to all these questions in advance. If you have just received an RFP and not sure what to do, you can also use our Consultancy Support.

When is a saving not a saving?

It would seem obvious that if you offer a reduction in your price, or you give the customer something for free, then it’s a saving, right? Unfortunately, this isn’t true. It’s certainly of value to your client’s Decision Maker, but it may not help Procurement deliver their objectives.

Here’s a simple example of different types of savings and what they really mean:

Cost-SavingCost AvoidanceValue Proposition
Is this a contract renewal or re-negotiation with downwards price movement based upon like for like volumes?Does the saving include a discount against a list price or standard rate card?Does the negotiation include free additional licences?
Is this a contract termination with services delivered in a new way or service no longer required?If we have no experience of buying this service (i.e. no baseline cost), then any savings will be “cost avoidance”Are we being offered something that we didn’t have before for free?
Have we got a comparable, actual set of prices and volumes based on invoices?Are we expecting a price increase from an existing supplier on an existing service and a reduction in the increase is achieved? If yes, this is “cost avoidance”Are we being offered “free implementation support?”

Why do your clients train their Procurement negotiators?

Negotiation maturity analysis
Source: IACCM and Huthwaite International

There’s a wealth of evidence that points to a direct improvement in business performance if negotiators are professionally trained. This chart is one of the most compelling indicators that “Organisations with high negotiation maturity post significant increases in net income”.

That’s why your clients train their negotiators, and that’s why you should too! If you want more information, have a look at our Negotiation Training Programmes.

Characteristics of any negotiation

In any negotiation, be it a business deal, buying a car or your relationships, there are common traits to the negotiation itself:

  • More than one party is involved
  • There are multiple agendas that are rational, emotional and political
  • People are staking out their positions and interests
  • Negotiation personalities need to be understood, i.e. collaborative, adversarial, partnership, amiable
  • Is it a transactional or strategic negotiation?

You need a framework to think through the negotiation and optimise success for all parties. This is particularly important in procurement negotiations as you are dealing with highly trained buyers.

Common negotiating mistakes and why we fail to reach agreement

Given all the negotiations I’ve been involved in, I’ve made some mistakes and learnt from them. These are some of the lessons learned:

  • Believing that what we bring to the table is more valuable to our counter-party than it actually is
  • Personalities getting in the way of a good deal (i.e. inability to separate the people from the problem)
  • Viewing negotiation as a fixed pie to be divided rather than an opportunity to increase the size of the pie
  • Lack of preparation. Virtually every professional buyer will have a Procurement negotiation process. You need a way of thinking through the three key stages of your negotiation
  • Not reading the personality type of your counter-party
  • Lack of empathy, i.e. failure to understand the other party’s perspective
  • Making the scope too narrow or too broad
  • Lack of objective criteria on which to base agreements
  • Winning the economic case and losing the relationship/trust
  • Not understanding the difference between interests and positions
  • Sequential negotiation strategies in complex situations – it can be seen as “chipping away” at value. It’s often better to put multiple variables on the table at once and negotiate what’s important to both parties
  • Believing you have to make a decision in the room

What are the traits of a successful negotiation?

This is by no means a comprehensive list. However, this, combined with “avoiding the common negotiating mistakes” is a good place to start planning your next negotiation:

  • Start with the end in mind and tack towards the prize or end-goal
  • Usually, making the “first offer” anchors the counter-party to your reference point (this has been well researched internationally)
  • Asking open questions, seeking the views of your counter-party and active listening all promote collaborative negotiations and win-win outcomes with the best overall value. Balance this with knowing when to close the deal
  • Test your (and their) BATNA (Best Alternative to a Negotiated Agreement) thoroughly with colleagues throughout the negotiation process. The power shifts continuously as the negotiation progresses
  • Identify what it is that you have, that costs you very little, but means a lot to your counter-party

Examples of buyer procurement negotiation tactics

When you’re at the negotiating table, you need to be aware of some common negotiation tactics used by trained professionals.

  • “The late-night DJ voice” Source: Chris Voss.
  • “The ultimate rationalist” – Mr Spock.
  • “The table thumper” (I thought they were long-gone, but recent evidence tells me they are still alive and well).
  • “The Columbo negotiator – there’s just one more thing”! Also called the “Chipper”.
  • “These are our corporate terms, we can’t change them”.
  • “The FUD factor”.
  • “Do you have full authority to negotiate any deal with me”.
  • “Your services aren’t worth [£X], you’re over-estimating the value you bring to the table.”

Conclusions

To recap, here are five essential steps you should take as part of the procurement negotiation process.

Five Steps For Successfully Negotiating with Procurement

  1. Start with the end in mind

    What does a perfect deal look like for you and your company?

  2. Understand what motivates procurement professionals

    This will help you understand how they operate.

  3. Prepare thoroughly

    80% of your success will depend on your preparation. Define your negotiation strategy.

  4. Work collaboratively with your counter-party

    Ask open questions, listen actively, and work proactively to create win-win solutions.

  5. Close the deal and agree the service level agreements

    This is important as they define what you will be measured against.

There is a famous saying “seek first to understand before being understood“. This is 100% true when dealing with Procurement professionals that you aren’t used to dealing with.

If you’re new to dealing with Procurement professionals, take on board the principles and ideas in this guide. It will demystify what Procurement really want and reduce any anxiety you may have about them.

Ultimately, understand your audience, know what they want and prepare before you engage in a meaningful negotiation with them.

I hope this guide has proved useful and debunked some of the myths about professional Procurement buyers. We are, after all, only human!

About the Author, Mike Lander

Expert negotiator, Mike Lander

I’m an ex-Procurement Director and Managing Partner of one of the UK’s largest Procurement consultancies. I have run over £400m of client spend and negotiated hundreds of Procurement deals. I’ve acted for clients as a buyer and advisor when negotiating with Procurement professionals. I’m a proven successful entrepreneur and corporate leader working with global B2B brands.

Download The Secrets of Negotiating with Procurement as a PDF Guide: