When was the last time you talked to your suppliers about the price you are paying for your materials or stock? If you are like most business owners, this may be a question where your answer is “Never”. Strange isn’t it? We rarely review or query some of our largest business costs, yet we continue to accept and absorb price rises from utilities, rent and suppliers. Still accepting suppliers price increases without fighting back? This is akin to death by a thousand cuts. Slowly but surely you are allowing your profit margin to decline as your cost of goods and overhead expenses rise. It may be time to ask your suppliers to sharpen their pencils….
We can of course raise prices on our products or services. When was the last time you snugged up your prices? If this situation is allowed to go on (our costs going up and our prices remaining static) we will eventually start to suffer profit erosion and business decline.
Do yourself a favour. Put aside some time within the next week to review your overheads by listing them out and converting each category of expense into a percentage of the revenue. Then order the expenses from highest to lowest. Set a target reduction in your largest expenses of 10% (wages are not part of this exercise) – you may not achieve this reduction but, at least by setting a goal you have something to aim for. Contact your suppliers and ask them if:
- they offer price reductions on certain sized orders
- they give discounts based on how quickly you pay your account
- they will extend your terms by 30 days
Keep your supplier list fresh and keep in touch with them to maintain the communication. Unless they have a monopoly on your supplies (this is a high risk business model!) you should shop around every six months to a year to negotiate the best prices for you. Plan to review the cost of goods and services and your prices regularly. Make it a goal to go through your list of overheads and reduce them every quarter. By depicting your expenses as a percentage of turnover it makes it easier to see whether the ratio is creeping up or dropping. When negotiating with supplier attempt initially to obtain a straight out price reduction. If this fails have a fall back discussion on the terms and conditions – longer payment terms or discounts on speedy payments/bulk purchases.
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