Paying Extra For Vendor Trust: Should You Do It?

There’s no question that trust is essential to good relationships, and highly valuable in business. So, it doesn’t surprise me when I hear a sentence like this:

“I trust those guys. It’s not worth it for me to switch vendors just to save 10%.”

While there’s more than a kernel of truth here, this card is overplayed and I’ve seen it cost companies millions of dollars. So how much extra should we pay to work with vendors we know and trust? We’ll dive into that question here.

For starters, pick one of your most valuable vendors, partners, or suppliers.

  1. Are you completely satisfied with them?
  2. Are you happy to pay a premium to work with them?

If you answered “no” to either question, you don’t need to read any further. Get thee to an RFP.

If your answers were “yes,” we advance to the bonus round. You’ve owned that you are happy to pay a premium, so the next question is:

What premium are you paying?

That is, how much above competitive market rates are you paying now? You probably have a guess, but unless you can produce a written proposal (or bid, or price) from within the last 18 months… you don’t really know. Technology, regulations, and communications are bringing rapid change to nearly every field, and it only takes a few months to lose sight of industry-leading solutions or competitive prices.

Not that price is everything: Buying Excellence is capturing the greatest value, not always the lowest price. There are many occasions where you wouldn’t change solutions or vendors for 5%, or 10% or even 20%.

But what about 30%? Or… 50%?

And if you don’t know… you’re simply guessing. If guessing is good enough for that area of spending at your company, that’s fine. If you need data, then it’s time to benchmark.

“But we have a relationship with these guys… I can’t go behind their back to shop their competition!”

It’s true that damaging a relationship with a trusted vendor can be costly, and I would not recommend covert black operations to validate your solution and pricing. Instead, start with carefully-scripted candor in a conversation with your incumbent vendor… something along the lines below:

 

Talking to Your Trusted Incumbent

  1. We like you guys, we trust you, and this has been a good working relationship.
  2. There is so much change going on in our industry and yours, and as a matter of stewardship we need to make sure we are keeping up with the leading solutions and competitive pricing.
  3. Since we haven’t spoken with anyone else in the marketplace in over two years, it is now time for us to go through that process, in compliance with our company policy.
  4. My hunch is that these steps are only going to strengthen our relationship, and help demonstrate to my company leadership how you have been actively delivering value. So as far as I know you have no need to be concerned.
  5. On the other hand, if there is more we can do together to reduce our costs and provide more value, this is a great time to have that conversation… and I can promise you that our leadership will give you full attention.

 

Each of those talking points has solid reasoning and years of experience behind it… more context than we can cover in this article. But these tips are essential:

  1. Rehearse until it’s authentic: (In other words, “fake it until you make it.”) If you don’t really believe those words, or you still feel bad about putting your vendor in this position of discomfort, you won’t be convincing or effective in your benchmarking efforts.
  2. Follow through with the benchmarking: In most fields, you can have a 45-minute call with a vendor and get a good ballpark understanding of the cost. Do this three more times, and you’ll be a near-expert and know where the market is. If the cost is large enough to warrant a full RFP process and getting actual quotes, then the value gained will outweigh the effort.

 

Paying a known premium can be the smart thing to do. But not knowing a premium, for a large area of spend, is not trust. It’s recklessness.

Here are a few other great articles on our site that will help you in the vendor process:

Five Simple Questions To Avoid Time-Based Billing From Vendors

Three Steps To Saving Your Company Money: How To COMPETE Purchases

 

Get your free Savings Kit and additional resources:

Get Your Free Savings Kit!

Includes 25 Savings Tactics, Video Tutorial, and spreadsheet with template.

JackSignUp