The Jim Moran Institute
for Global Entrepreneurship

Main

Services
• Consulting
• Entrepreneurial Showcase
• Mentoring Program
• Youth Initiative - Junior Achievement (JA)
• Entrepreneur Roundtables
• Tip of the Month
• Contact Us

Jim Moran Institute
• Meet Jim Moran
• The JMI Staff
• Board of Advisors
• Testimonials
• Major in Entrepreneurship
• The Entrepreneurship Bootcamp for Veterans with Disabilities (EBV)

Resources


• Business Resources
• FAQs
• Related Links

Purchasing from Vendors

March 26, 2006

Q- I am in the technology business and I am not too sure that I am getting the cheapest prices for the products that I am buying. What can I do?

The price you pay for products is critical to the success of your business. Every dollar that you overpay for a product translates to a reduction of one dollar from your net income. In like manner, every dollar you can save in purchasing enhances your profits by one dollar.

I am not a big believer in getting the cheapest price you can. I would prefer to buy products at a fair price. You clearly do not want to overpay vendor, but trying to beat them down to rock bottom will not endear them to you. In a crisis or when you need a favor, they may not be willing to help you.

If you are buying a standard commodity you can check your prices by checking with alternative vendors in your city. Most vendors that deal with standard types of products will match a competitor’s price because they want to keep you as a customer.

Sometimes there is only one vendor offering the product or service you need, which makes it hard to comparison shop. In these cases you can tell whether the vendor’s prices are reasonable by calculating whether you can make a reasonable profit after you have covered all of your costs.

In the technology business you frequently have to provide products at very low margins to keep the customer prices reasonable and then make up the difference through other revenue streams.

Some vendors will raise gradually raise prices, hoping the customer will not notice. One victim of price creep was able to reduce her costs by getting a bid from another vendor. When she pointed out the price differential, the original supplier dropped the price he was charging her by 40 percent.

You can also save money through volume buying. When you buy a small number of products, you pay a higher price per unit. The larger the quantity in the purchase, the higher the discount. You will have to spend more at the time of purchase, but the savings will accrue over the long-term. Sometimes you can negotiate lower prices by promising regular purchases of a smaller amount that add up to some larger quantity over time.

Purchasing needs to be a win/win scenario. The vendor needs to make some money and you need to get the products at a reasonable cost.

You can do this!