The Role of Vendor Negotiations in Improving Margins

When I buy a business, I know one of the fastest ways to improve profitability isn’t raising prices, it’s negotiating with vendors. Over the years, I’ve learned that small businesses often accept vendor terms without question. Owners get comfortable and stop pushing for better deals. That complacency leaves margin improvements on the table.

Why Vendor Negotiations Matter

Vendor negotiations matter because they:

• Reduce the cost of goods sold (COGS)
• Improve cash flow through better payment terms
• Strengthen supply chain stability
• Increase bargaining power as the business scales
• Boost valuation by improving margins

Every dollar saved through negotiation drops straight to the bottom line.

My Early Mistakes

In one acquisition, I assumed vendor terms were non-negotiable. After months, I learned competitors were paying 10% less for the same materials. That cost difference hit profitability hard.

In another deal, I focused only on price but ignored delivery and credit terms. When demand surged, the vendor failed to deliver, creating customer frustration.

Both mistakes taught me that negotiation must be holistic; price, terms, reliability, and service all matter.

How I Evaluate Vendor Negotiation Opportunities

During diligence, I ask:

• How long has the business worked with each vendor?
• Are prices competitive relative to market benchmarks?
• What volume discounts are available?
• Are payment terms flexible or rigid?
• Do vendors view the company as a valued partner?

How I Negotiate Post-Acquisition

• Consolidate volume to strengthen bargaining power
• Ask for better payment terms to free working capital
• Explore multiple suppliers to create leverage
• Build partnerships where vendors share growth upside
• Review contracts regularly instead of letting them auto-renewal

Final Thoughts

I’ve learned that vendor negotiations are one of the fastest, most effective ways to improve margins. They don’t require customer risk, just disciplined conversations and leverage.

That’s why I treat vendor negotiations as a priority in every acquisition.

I continue sharing my acquisition playbook at drconnorrobertson.com, where I explain how I unlock hidden margin improvements deal by deal.