Procurement Negotiation Strategies & Examples

How effective procurement negotiation can help drive business value

With businesses requiring more technology and services than ever before, the contract negotiation stage of any procurement cycle is of critical importance to a company’s fiscal stability, operational efficiency, and long-term growth.

It’s the primary opportunity for buyers to ensure favorable terms, mitigate risks, and establish strategic supplier relationships.

But while these discussions can, of course, be used to drive down the cost of indirect goods or services – at least with the right negotiation strategy and benchmarking data – procurement negotiations are about more than just price. They should also serve to secure more favorable contract terms, helping to mitigate risk and ensure long-term success.

Procurement negotiation strategies

Below, we’ve outlined some of our recommended negotiation tactics and strategies.

• Start negotiations early – The more time you allow for procurement negotiations, the more leverage you have. Leaving negotiations too close to the renewal deadline not only leads to discussions becoming rushed, but it can also negatively impact the savings you’re able to secure.

Starting negotiations 90+ days ahead of renewals delivers average savings of 49%, compared to just 19% when started between 30 and 60 days. See the savings by SaaS category here

• Access benchmarking data – Procurement benchmarking data can provide you with the leverage needed to secure the most lucrative deals. With this data, you can enter into these discussions knowing what other similar companies are paying for the exact same subscription and use it to anchor negotiations.
• Obtain vendor intel – Benchmarking data can also be used to reveal patterns around vendor discounting, for example the times of year that typically deliver the highest savings. In addition to this, it can help to uncover vendor pricing models that aren’t necessarily advertised, but that can allow more flexibility and possibly greater cost-savings.
• Establishing your BATNA – Your Best Alternative to a Negotiated Agreement (BATNA) can be a powerful tool in negotiations for two reasons. Firstly, it strengthens your negotiating position by showing the vendor you’ve done your research, and secondly, it empowers you to walk away if the deal isn’t right – preventing you from being pressured into accepting unfavorable terms.
• Submit multiple offers — Procurement negotiation is about finding a happy mid-point between two parties. By submitting multiple offers — each reflecting a slightly different agreement — you improve the chances of striking this balance.
• Determine your non-negotiables vs negotiables – It’s important to understand what your non-negotiables are and to stick by them. Equally important is the recognition that other parts of the agreement are up for discussion. A reluctance to allow concessions where you can in procurement contract negotiation has the potential to damage long-term relationships without gaining anything for the bottom line. Vendors will rarely let you have your cake and eat it too, so know where you can, and can’t compromise. The trick is compromising in areas that won’t affect your cost or capabilities – multi-year deals are a great example of this.
• Leverage external negotiation support – Contract negotiations are not only time-consuming – the average negotiation takes 21 days – but even when time isn’t an issue, many procurement teams lack the necessary intel to secure the most lucrative deals. By working with a procurement partner, you gain access to specialized expertise, real-time benchmarking data, and vendor-specific insights that can significantly improve negotiation outcomes while freeing up internal resources.

See how Vertice saved one company more than 115 hours on contract negotiations in just three months, while achieving average savings of 30% for another.

Negotiation levers in procurement

Here are some of the levers you can pull during procurement negotiations to secure the best deals.

• Volume commitments – When procuring physical goods, you may want to consider purchasing larger quantities in exchange for volume discounts.
• Contract length – When procuring SaaS, opting for a longer subscription term can help to improve your negotiation leverage. Our own data indicates that for each additional year you commit to, you can secure an extra 5% discount.
• Payment terms – Demonstrating flexibility on your side can help you secure a better deal in other areas, particularly around price. As an example, you might want to consider accommodating shorter net payment terms.
• Service level agreements (SLAs) – Negotiating around SLAs not only helps you balance risk and cost, but it can also help you unlock better pricing or terms. As an example, if your business isn’t overly reliant on 24/7 uptime or instant response times, you might accept slightly lower uptime guarantees, for example 98% as opposed to 99.9%, or longer support response times in exchange for reduced pricing.

Renewing SaaS? Take a look at the full list of terms that can be negotiated within a software contract.

Types of negotiation in procurement

Price negotiation

Price is often a core focus in negotiations – particularly when procuring indirect goods and services such as SaaS – for the simple reason that companies overpay by an average of 26%.

Terms and conditions negotiation

Price isn’t the only thing that can be negotiated in procurement, it’s also the terms of a contract. This includes:

• Payment terms
• Contract length
• SLAs
• Termination clauses
• Overages
• Auto-renewal clauses
• Price uplifts

Value-added negotiation

You may also want to negotiate additional services such as onboarding, training, better support, and even premium features, without increasing your spend.

Performance-based negotiation

This type of procurement negotiation links supplier compensation to specific outcomes or KPIs, aligning incentives and ensuring accountability. It is most often used for services such as consultants or agencies, where success depends on measurable outcomes.

The most effective negotiations will ultimately seek to negotiate on most, if not all, of these areas, driving both cost-efficiency and long-term value.

Stages of negotiation in procurement

1. Preparation – Allowing yourself ample time to negotiate a contract – ideally 90+ days if you’re renewing software – enables you to thoroughly prepare for these discussions. It is during this point that you should obtain the relevant benchmarking data, research potential suppliers, establish your BATNA, and formulate your negotiation strategy.
2. Initiating negotiations – When you have time on your side, you can also ensure that negotiations aren’t rushed and that they're being used to establish a positive relationship.
3. Exploration and information exchange – This stage should be used to gather additional information, clarify needs, and identify constraints on both sides.
4. Bargaining and discussions – This is arguably the most important part of negotiations, as it allows both sides to exchange offers and counteroffers. Coming to these negotiations with leverage in the form of benchmarks and market intel is key, and you may need to be prepared to make trade-offs in certain areas. Consider approaching the conversation as follows:

“We’ve seen companies of our size paying 20-30% less for the same subscription and with similar contract terms. Can you help me understand why we’re being quoted so much more?”

5. Closing the negotiation – This is the point where the agreement is finalized, any outstanding issues are resolved, and the contract is signed.
6. Contract management – Procurement teams will need to continually manage contracts, in order to ensure compliance, maintain supplier relationships, and track renewals.  

Outsourcing procurement negotiation

Negotiations are not only incredibly time-consuming, but with organizations now managing an average of 132 software applications, many procurement teams simply don’t have the bandwidth to negotiate each and every contract. As a result, key opportunities are overlooked, and millions of dollars are lost each year to suboptimal terms and missed renewals.

This is why so many companies are now turning to procurement providers like Vertice to handle contract negotiations on their behalf.

Some of the specific benefits of outsourcing procurement include:

• External expertise – Vertice negotiates with vendors on a daily basis, meaning our procurement managers have unrivaled market knowledge and vendor-specific insights.
• Substantial cost savings – Our benchmarking data and negotiation experience are leveraged to secure the best possible terms and pricing on any contract. Our spend optimization software also identifies opportunities for cost reduction across your entire tech stack, helping you reduce spend and mitigate the impact of rising costs. See how Vertice helped one company save as much as $155,000 on a single subscription.
• Significant time savings – We save companies countless hours every month, not only on negotiations, but also on contract management, renewal tracking, and compliance monitoring.
• Improved supplier relationships – By acting as a trusted intermediary, we help foster positive, long-term supplier relationships, ensuring better collaboration and greater value.
• Automation – It’s not just a dedicated procurement manager you get access to, we also utilize technology to streamline workflows, optimize renewals, and manage spend.

Why not see for yourself how Vertice can support your procurement negotiations by taking a self-guided tour of the platform.