Too many people starting up in business see negotiation as a chore and haggling as an embarrassment or a waste of time.
However, if you spend 15 minutes knocking £500 off the price of a piece of equipment, you effectively earn your business £2,000 an hour.
As a seller, good negotiation will ensure you do not waste money giving discounts needlessly, or miss opportunities to increase sales.
This briefing explains:
- How to prepare for negotiations.
- How to improve your negotiating position.
- How to sell for more and pay less.
- How to handle tactics and gamesmanship.
1 The golden rules
There is no single formula for successful negotiation. Sometimes, you may need to tread carefully and make concessions. Other times, you can be fast and aggressive.
1.1 Set your objectives.
For example, if you are selling, you might decide upon these four key objectives, plus several less important ones:
- Price - a price to aim for, and a lowest acceptable price.
- Volume - high volume is vital if you have spare production capacity (often the case with manufacturers).
- Timing - you need to fill quiet periods.
- Payment terms - you want fast payment, but the buyer will want to try the goods and delay payment as long as possible.
1.2 The other side will have key objectives, too, so try to understand what is going on.
Knowing your opponent's negotiating position is the most powerful weapon you can have (see 2.4).
1.3 Give nothing for nothing.
Avoid making a concession without getting something in return.
Stay firm, or make a trade-off:
- "Yes, we can do it. But it will cost extra."
- "I am willing to pay your price, if it includes delivery."
If the other side makes a concession, do not feel you must. Treat it as a natural outcome.
1.4 Create a 'win-win' situation.
- Stress the benefits the other side will receive from the deal.
- Do not screw every last penny out of suppliers and customers, if you want to build a long-term relationship with them.
1.5 Write down your negotiating strategy.
- Outline your negotiating position and what you know of the other side's.
- List objectives, what is negotiable, how far you are prepared to go and any concessions you could make.
- Decide your negotiating tactics.
A written strategy is vital for a negotiating team. People must know their roles.
2 Give yourself power
If you begin negotiations feeling you are in a weak position, you will not get what you want.
2.1 Pay attention to timing.
Choosing the right time can make negotiation a lot easier.
- Ask for a bank loan when your account is in credit - before you need it.
- Negotiate your tenancy when tenants have moved out, and the landlord needs you.
2.2 Create alternatives.
A forced seller always gets a poor deal.
- Avoid over-reliance on one customer or one supplier.
- Use your bank, or improve your credit control, so you do not go into a negotiation desperate for cash.
2.3 Establish what points you are negotiating from the outset.
This stops the other side from bringing new factors into the discussion later, especially when you think you have an agreement.
2.4 Keep key information to yourself.
Do not give away anything until you have established the other side's negotiating position.
2.5 Recognise that relationships win the day.
If someone wants to do business with you, getting a fair deal should be easy.
- Use your contacts to get introductions to people you want to do business with.
- Where possible, get to know someone before any serious negotiations start.
3 Buying at a lower price
It is almost always possible to pay less - if you are prepared to negotiate purposefully.
3.1 Never accept a first offer.
Even the seller may be unhappy - wondering if you would have paid more.
- Make a counter-offer.
- Your low opening bid will lower the seller's expectations.
- Even if he or she is very unhappy with your offer, you will get an idea of how far the seller is prepared to move.
3.2 Think what could change the price.
Even if the unit price appears to be fixed, try different approaches.
- "How much for two?" "How much for the whole box?"
- "How much for the ex-demonstration model?" "Can I have 10 per cent off for this damaged one?"
- "How big a discount for immediate payment? Or for collecting the machinery myself?"
4 Selling at a higher price
Begin negotiating as soon as the customer appears interested.
4.1 Do not make concessions from the start.
- Even if you are prepared to accept offers, do not say so in your advertisements.
- 'Introductory' discounts are difficult to remove later.
- Do not offer discounts which have not been asked for, in an attempt to buy goodwill. This may make the customer believe the original price was too high.
- Postpone any concessions - eg "Let's talk about that when we meet."
4.2 Start tough and stay tough.
Start with a high demand, and then offer only minor concessions, or deals which work to your advantage.
- A tough opening usually gets a soft response.
- There is almost always a chance to start negotiating again, if things go wrong.
4.3 Sell all the benefits.
- Show how much the product will be worth to the customer.
- To make the headline price lower, strip out extra costs like expenses and consumables.
Charge for them separately.
- Sell a package which shows that the customer is getting value.
For example, a quote of £2,000 to do a day's training sounds expensive.
Exactly the same training, sold as "two full days' preparation for a 12-person course, including a tailor-made training manual (that will make the training three times as effective), plus the day's actual training, all for £2,000", sounds like better value.
- If you are already a supplier, and the buyer mentions a "better offer" from a competitor, point out the risk and hassles of using a new supplier.
4.4 Restructure the deal, rather than reducing your price.
4.5 Link the deal.
- Make a concession on one deal in return for getting another settled.
For example, "I will agree to your request for a 5 per cent discount, if you withdraw your claim for compensation on those parts you said were faulty."
This puts the other side under pressure to settle both deals.
4.6 Work out the true value of your product to this particular customer, at this particular time.
The same product may be worth more or less to different customers.
For example, an antique table could be:
- Valuable to a collector.
Hold out for your price - you know that piece of furniture is worth it.
- Needed in a hurry by a film company.
Up the price and stress the most important part of the deal - that you can deliver the table today.
- More than is necessary for someone who just needs a table for a computer.
If the price is too high, offer another product which is more suitable.
4.7 Avoid getting drawn into an auction.
- Find out if the buyer is really trying to do a deal with you, or just window-shopping.
If it looks like shopping around, invite the customer to come back to you with details of the best offer found.
Ask him or her to agree that you will get the business if you can beat that offer.
You can use a variety of tactics to try to swing things your way.
5.1 Use the power of silence.
Many people cannot bear silence, and will fill the space by agreeing to your terms.
- If you are getting the silent treatment, start making notes in your diary.
5.2 Make deadlines work for you.
- Linking your concessions to a deadline can pressure the other party into agreement.
- If you are told a deadline, test how serious it is: "So, if I do not agree by the deadline, there is no point in talking any more?"
If you can afford to stall until close to the other side's deadline, you will probably get the deal you want.
5.3 Explain that you have budget limits.
You want to pay £5,000 for advertising. They are asking £6,500. Try "I've got no more money."
5.4 Make sure the other side invests more time and effort than you. This makes it hard for a negotiator to walk away empty handed.
- For every action you agree to take on, get the other side to commit to two.
5.5 Threats are usually counterproductive.
People threaten you back, and you end up in a no-win situation. Instead, negotiate.
- Avoid making threats, especially if you lack the will and the means to carry them out.
- To disarm a threat, show you are indifferent to it.
Negotiation can be stressful, but keep your reactions low-key.
5.6 Ignore psychological gamesmanship.
- Some negotiators try to gain a psychological edge. For example, by displaying status symbols (eg smart car), name dropping, or arranging staged interruptions such as phone calls.
- Recognise these for what they are: tactics.
- Blank them out and focus on what is actually being said.
Playing for time
If your negotiation is deadlocked, invent an adviser or partner you must consult.
- You gain time to think over your negotiating strategy.
- The other side will feel the pressure of the deal slipping away.
If this tactic is used on you, ask for the adviser to come to the next meeting.
- Politely indicate that you do not want to waste time dealing with someone who is unable to reach a binding agreement.
You can use an agent (or perhaps one of your employees) to negotiate for you.
- They can use this tactic and mean it.
6 Finishing up
You have done the deal. Do not throw away all that hard work.
6.1 Look after the pennies.
You clinched the deal without promising any extras, so do not throw them in now.
6.2 Verbally summarise the agreement reached.
- Make sure you both agree on all the points covered.
6.3 Shake hands on the deal.
- Nobody likes going back on a handshake.
6.4 Emphasise the benefits to the other side.
- Even if you have negotiated a deal which is very much in your favour, present it as a 'win-win' outcome so there will be enthusiasm about dealing with you again.
Any important agreement must be in writing - even if it is with your best friend.
- This makes sure both sides are clear about what has been said. And it helps stop people wriggling out of the agreement later.
- Send a letter summarising any concessions you have won in a meeting - even if no overall agreement was reached.
6.6 Deal with any last-minute changes. Some negotiators will let you think the deal is done and then ask for another concession.
This is done in the hope that you will panic at the thought of losing the deal and cave in immediately.