How do you handle price increases, contract renewals, and service changes?

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If you work with vendors, you know that price increases, contract renewals, and service changes are inevitable. But how do you handle them without compromising your budget, quality, and relationship? In this article, we'll share some tips on how to negotiate effectively with vendors and increase your bargaining power.

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1 Know your alternatives

Before you enter any negotiation, you need to know your best alternative to a negotiated agreement (BATNA). This is the option you would choose if you can't reach a satisfactory deal with your current vendor. Your BATNA could be switching to a different vendor, finding a substitute product or service, or doing it yourself. Knowing your BATNA helps you set your walk-away point and avoid accepting unfavorable terms.

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Colleen Mahoney

Technology Sourcing Advisor, Vendor Management, C Suite Engagement, Contract Negotiation, Consulting, Professional Services, Software Licensing, SAAS
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I recommend considering this when you strike the first deal - what happens when the first term is up and you are back at the table negotiating again. If you have planned for this both contractually (limit on % increase, right to extend existing terms for X periods, documentation or other materials necessary to make a move, length of transition support to move to another provider, leveraging existing terms, etc) it makes the next discussions some much easier

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2 Communicate your value

Another way to increase your bargaining power is to communicate your value to your vendor. This means highlighting the benefits of working with you, such as your loyalty, volume, referrals, or feedback. You can also leverage your reputation, network, or industry influence to show that you are a desirable customer. By communicating your value, you can create a win-win situation where both parties feel valued and respected.

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Colleen Mahoney

Technology Sourcing Advisor, Vendor Management, C Suite Engagement, Contract Negotiation, Consulting, Professional Services, Software Licensing, SAAS
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Ask your vendor what is important to them - it is less expensive to keep an existing client than to get a new one. Use that as an advantage. They may want to use your company as a referenceable account or at a speaking event - their is value to both the sales team and the vendor that you can explore to benefit your company in the negotiation process.

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3 Research the market

Before you accept any price increase, contract renewal, or service change, you need to research the market and compare your vendor's offer with other options. You can use online tools, industry reports, or professional contacts to gather information and benchmark your vendor's performance. This will help you identify any gaps, inconsistencies, or opportunities for improvement. You can also use this data to support your arguments and counteroffers during the negotiation.

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Colleen Mahoney

Technology Sourcing Advisor, Vendor Management, C Suite Engagement, Contract Negotiation, Consulting, Professional Services, Software Licensing, SAAS
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Research internally as well - determine how long the company wants/needs to use the service, the feasibility/cost of change, possible plans for growth or change, etc. Good sales teams will know who their competitors are, will know the cost of leaving their service and going to another. You need to have as much information as they do about your own company's needs and wants.

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4 Ask for justification

When your vendor proposes a price increase, contract renewal, or service change, don't just accept it at face value. Ask for justification and evidence to back up their claim. For example, you can ask them to explain how they calculated the price increase, what value they are adding to the contract, or how the service change will affect your operations. By asking for justification, you can challenge your vendor's assumptions, uncover hidden costs, or discover potential savings.

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Colleen Mahoney

Technology Sourcing Advisor, Vendor Management, C Suite Engagement, Contract Negotiation, Consulting, Professional Services, Software Licensing, SAAS
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In my experience, sales teams often dont know or cant share why things are changing. I have found it better to focus on the assumptions they are using, the new products/services they are being incentivized to sell more of, to understand roadmaps and future plans, etc. These can help you jointly craft a more interesting offer.

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5 Seek trade-offs

If you can't get your vendor to lower their price, extend their contract, or maintain their service level, you can still negotiate for trade-offs. This means asking for something else in exchange for what you are giving up. For example, you can ask for a discount, a bonus, a warranty, a free trial, or a flexible payment plan. You can also offer something that your vendor values, such as a testimonial, a referral, or a long-term commitment. By seeking trade-offs, you can create value and balance for both parties.

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6 Build rapport

Finally, don't forget to build rapport with your vendor throughout the negotiation process. Rapport is the feeling of trust, understanding, and connection that you establish with another person. You can build rapport by using positive language, showing empathy, listening actively, and finding common ground. By building rapport, you can reduce tension, increase cooperation, and strengthen your relationship with your vendor.

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Colleen Mahoney

Technology Sourcing Advisor, Vendor Management, C Suite Engagement, Contract Negotiation, Consulting, Professional Services, Software Licensing, SAAS
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Where possible start the process early, build time into the negotiations to learn more about the team you are working with, let them learn more about your company's challenges, etc so that you can naturally build the rapport. It is not always possible to build rapport sometimes due to lack of interest by one or both parties or take it or leave it attitude, and that is ok. Understanding that upfront will allow you to choose how you spend your time and with whom you spend your time.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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How do you handle price increases, contract renewals, and service changes?

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1 Know your alternatives

2 Communicate your value

3 Research the market

4 Ask for justification

5 Seek trade-offs

6 Build rapport

7 Here’s what else to consider

Vendor Negotiation

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