Negotiation

Too many people starting up in business see negotiation as a chore and haggling as an embarrassment or a waste of time.

As a buyer, 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:

  1. How to prepare for negotiations.
  2. How to improve your negotiating position.
  3. How to sell for more and pay out less.
  4. How to handle tactics and gamesmanship.

1 The golden rules

There is no single formula for successful negotiation. In one situation, you may need to tread carefully and make concessions. In another, 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 Try to understand what is really going on.

The other side will have key objectives, too.

  • What can the person you are negotiating with not concede?
  • How urgently is your product needed?
  • Is your supplier trying to clear old stock?
  • What alternatives does the other side have?

1.3 Give nothing for nothing.

Avoid making a concession without getting something in return.

Stay firm, or make a trade-off:

  • 'No, our product is worth our price.'
  • 'Yes, we can do it. But it will cost extra.'
  • 'I am willing to pay your price, if it includes delivery.'

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 (and how far you are prepared to go) and any concessions you could make.
  • Decide your negotiating tactics.

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.

For example:

  • Ask for a bank loan when your account is in credit - before you get into trouble.
  • 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. (See Financing your business and Credit control).

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 your negotiating position until you have completely established the other side's negotiating position.

For example:

  • If a buyer asks what price you are offering, say that it depends on all sorts of things, including volume and timing.
  • Answers like 'We are keen to do a deal' provide the other side with no useful information, sound positive and allow you to go on asking questions yourself.

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 ten per cent off for this scratched 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 (see Effective selling).

  • Show how much the product will be worth to this particular customer.
  • To make the headline price lower, strip out extra costs like expenses and consumables.
  • Sell a package which shows that the customer is getting 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.

  • Can you offer better payment terms, delivery service, or special specifications?
  • Is the buyer prepared to place a larger order, or commit to future orders?

4.5 Link the deal.

  • Make a concession on one deal in return for getting another deal settled.

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 specialist collector.
  • Needed in a hurry by a film company.
  • More than is necessary for someone who just needs a table for a computer.

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.

5 Tactics

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?'

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.

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 (eg phone calls which make them look good).
  • 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.
  • Politely indicate that you do not want to waste time dealing with someone who is unable to reach a binding agreement.
  • They can use this tactic and mean it.

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.
  • They can use this tactic and mean it.

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.

  • If someone is buying your premises, offer the carpets separately - for more money.

6.2 Verbally summarise the agreement reached.

  • Make sure you both agree on all the points you have 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.

6.5 Get it in writing.

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.

  • Remember that they have invested as much time in the deal as you have.
  • Stay calm and keep negotiating as before.