Estimate Your Vendor's Profit Margin Before You Negotiate Your Deal

As a newer lawyer, I had no idea that the vendor's profit margin should play into how I negotiate. I thought our goal for negotiations was to shift as much risk and pay as little to the vendor as we can.

What I learned over time was that this kind of attitude is short-sighted for our clients. It can do more harm than good.

Here's why I believe knowing your vendor's profit margin is critical:

1. Gauge how to allocate risk

Every business contract has some risk. We allocate that risk in a way that makes this contract make sense for both parties.

If a vendor is making a 3% margin as a sale, it cannot accept significant liability and risk. But a vendor making a 50% margin on a large transaction has room to take on more risk and still make money.

2. Keep your vendor in the business

You don't want your deal to put your vendors out of business.

The smartest customers work hard to create a working relationship that preserves a reasonable profit for the vendor.