When your vendors tell you you’re getting the best deal, are they telling the truth?
If your finalized deal shows any of the following signs, chances are you’re being swindled. Scott Drobes, managing partner of Third Law Sourcing, details warning signs that you’ve cut a bad deal.
Take a look and then share this info with your primary vendor negotiators and purchasers.
1. Beware of the bundle
You can’t get an accurate sense of the value of everything you’re getting with a package deal. You want to always shoot for line item pricing. The benefit here is that you get a true sense of the value of what you’re purchasing and are able to compare costs, so that, if need be, you can get certain items from other vendors for cheaper.
2. Buying in bulk
Dross points out that contract terms are usually designed to improve vendor margins over time. Multi-year agreements can hurt your ability to bring in other vendors which you may want to eventually do, especially if your business improves and needs more demand. Also, if you’re agreeing to a minimum volume commitment, you need to be prepared in the event your business slows down. Otherwise you may be paying for services you aren’t getting.
3. Auto-renewals = less flexibility
Be wary of auto-renewals as they usually mean stringent terms if you decide to not renew. You’ll usually need to give a vendor significant notice, and if you miss their set deadline, you run the risk of kissing any leverage goodbye. Conversely, vendors that offer more complicated services or products recognize the time, costs and headaches associated with changing vendors. They’ll more than likely push back negotiations until right before renewal time – so you won’t have any time to compare, contrast or have any sort of leverage.
Have you noticed any warning signs of a bad deal in your experience? Let us know in the comments below.