Most companies give their employees feedback all year and give their vendors nothing but invoices. That silence is more expensive than it looks.
A few weeks ago, an Esteemed member told me about something they do every year. They mentioned it in passing, the way you might mention rotating your tires. I haven’t been able to stop thinking about it.
Once a year, they sit down with each of their vendors, every single one, and give them an annual review. It isn’t a contract renegotiation, and it isn’t a procurement exercise. It’s a review: the same conversation you would have with an employee. Here’s how you delivered on your role. Here’s where you can do better. Here’s what I need from you next year.
Then comes the part that makes it brilliant. The review is tied to price. If a vendor has done great work and a rate increase is coming, the review is what justifies it. If the work has been poor, prices stay flat or come down.
I wish I had done this at gap intelligence.
Consider how most companies treat the two groups of people who do their work.
Employees get one-on-ones. They get feedback, ideally as small, frequent taps on the steering wheel rather than one hard yank. They get goals, a mid-year check-in, and an annual review. We have built an entire management discipline around telling people where they stand, because we’ve learned that people who don’t know where they stand tend to drift.
Vendors get an invoice. Then another invoice. And once a year, perhaps, a letter announcing that rates are going up.
That’s a peculiar blind spot, given how much of a modern company’s work is done by people who never appear on the org chart: the accountant, the IT provider, the agency, the logistics partner, the software the business runs on. Add it up, and for many companies vendor spend is one of the largest numbers on the P&L. Yet we manage nearly all of it with silence.
That silence costs you in two directions.
It costs you when a vendor underperforms. The small irritations pile up: a missed deadline, a slow ticket, the third account manager this year. Nobody says anything, because there’s never a natural moment to say it. Then one day you’ve had enough, and you fire them. From their side, it came out of nowhere. From yours, it took a year to get there. It’s the same failure we see when an employee is blindsided in a termination meeting. If they’re surprised, the manager failed.
It also costs you when a vendor is excellent. Great vendors rarely hear that they’re great. They hear from you only when something breaks. So when their price increase arrives, you bristle, because you have no way of judging whether they’ve earned it. And the vendor who has been quietly saving you every month is left feeling like a commodity.
A Tale of Two Vendors
I’ve seen both sides of this from the customer’s chair.
The first was Slack. I liked the product, but what I came to appreciate even more was how Slack communicated its value. Every month, an email arrived showing how much my team was using the tool and what Slack had added to make it better. It was a steady, almost unremarkable drip of information. But it meant that when Slack’s prices crept up, I already had the evidence I needed to justify the increase. They had been making their case all year, one email at a time.
The second was our payroll provider. We used them for seven years, and in all that time they never once reached out. The service was consistent; I had no real complaints. Then they called to raise their prices, and we left. Not because they had done anything wrong, but because we had no way to justify paying more for service that had plateaued years earlier. Their silence had turned seven years of reliability into a commodity, and you don’t pay a premium for a commodity.
The difference between those two vendors wasn’t the quality of their product. It was the quality of the conversation.
Most vendors will never be Slack. So don’t wait for them to start the conversation. Start it yourself.
Why the Annual Vendor Review Works
What I love about this approach is that it doesn’t invent anything. It takes a system we already trust and simply points it somewhere new.
It creates the moment. The hardest part of feedback is finding a natural time to give it. A review on the calendar solves that. Everyone knows it’s coming, so no one is ambushed.
It makes price a consequence, not a negotiation. Most pricing conversations are a tug-of-war: they want more, you want to pay less, and whoever has more leverage wins. The annual review changes the frame. Price becomes the final paragraph of a performance conversation. Good work earns a raise; poor work doesn’t. It’s fair, and good vendors tend to welcome it, because it rewards the very thing they’re proud of.
It keeps everyone honest, including you. To write down what a vendor did well and badly, you actually have to know. You have to look at the invoices, the tickets, and the missed dates. Sometimes you’ll discover that the “bad vendor” was fine, and the real problem was that you never told them what you wanted. That’s on you, and the review brings it into the open.
It signals that you’re a serious customer. Vendors put their best people on the clients who pay attention.
How to Start
You don’t need a procurement department. Here’s the simple version:
- Pick the vendors that matter. Rank them by spend, or by how much it hurts when they get it wrong.
- Gather the facts. What you spent, what you got, what went wrong, and what went right.
- Score them. Use a handful of criteria (quality, reliability, responsiveness, value, and partnership) on a simple 1–5 scale.
- Meet. Cover what’s working, what isn’t, what it means for pricing, and what each side commits to for the coming year. Assume positive intent. Be direct, and don’t be a jerk.
- Close the loop. Write down the commitments and put next year’s review on the calendar before you hang up.
I’d add one rule: no surprises. If something goes badly in March, don’t save it for the review. As with an employee, the annual vendor review should summarize conversations you’ve already had, not introduce new ones.
The Bigger Idea
What this Esteemed member figured out is that management was never really about employees. It’s about everyone who does work for you. Clear expectations, honest feedback, and consequences tied to performance work on anyone who wants to keep your business. It’s the same set of principles we teach in the Esteemed MBAi, and it turns out they travel well beyond the org chart.
I wish I had figured that out at gap intelligence. You can figure it out this week. Pick your most important vendor and put a review on the calendar for next month. Then start by telling them what’s going well.
They’ve probably never heard it.