Written by Ian Hirst
Do you sometimes find that in a negotiation – especially when you are on the ‘selling’ side of the deal, negotiations are all about going backwards from your initial proposal as you offer, hopefully low cost, concessions? In these negotiations, on a good day, you go backwards slowly and the customer does eventually agree to a way forward whilst you still have an acceptable margin. On a bad day though, does the customer seem to scent blood and keep demanding more?
In this article we explore perhaps the holy grail of negotiating – how by trading rather than conceding, an effective negotiator can emerge with a deal that is as good – or even better- than their initial proposal….
How does this work?
Well – at some point in any negotiation there will be a proposal ‘on the table’. In a typical sales situation, this may be a written proposal or quotation. In other negotiations it could be a verbal suggestion made during the meeting by one of the parties. Let’s take the first example of a sales negotiation where a written proposal has already been put forward.
In this simple example, let’s say the proposal is for professional services valued at £50k. It’s the first phase of a potentially larger piece of work, in several phases, each of which might need to be sold in separately.
The buyer however wants to negotiate a better deal and offers £40k, citing some lurking competitor as rationale…
A non-expert negotiator might think they only have 3 basic choices – (a) to stand firm, (b) to accept the offer or (c) to offer a compromise – say £45k. None of these are great – the ‘standing firm’ option might win you this deal if the customer really doesn’t have a choice, but its high risk and will certainly position you as inflexible – and maybe the customer actually does only have £40K!
In essence the buyer came into the negotiation with a ‘shopping list’ of items they wanted. One of these (maybe not the only one) is price.
The challenge here is how you can also go into the negotiation with your own shopping list of items that, although they are of real value to you, were not part of the initial proposal. These are your collateral to now use in a trade.
A salesperson’s shopping list
In our negotiation workshops over the last ten years we have asked our classes over 100 times “what could be on your shopping list?” – ie what could you could ask for in return for meeting (partly at least) a client’s price requirements. The answers, regardless of sector, type of product etc are remarkably similar. They include…
|Better payment phasing (eg more up front)||Increased scope – eg a larger piece of work|
|Better payment terms (faster payments after invoicing)||References / Written Case Studies|
|Being a preferred supplier||Resources (office space, their people etc)|
|Timescales – either longer or shorter, depending on what suits you||Risk reduction – no penalties etc,|
The more items the better – whilst you still have items on your shopping list, you can show flexibility whilst maintaining value.
How this could work….
So – back to our previous example: if the client says “everything else in the proposal is fine, but I can only pay £40k”, you now have more options, with your shopping list. The first step of course is exploring why they can only pay £40k – let’s assume you have done this and you believe they could actually pay more… you might suggest something like:
“OK I understand that budget for this phase is an issue for you. We have offered what we know is a fair price, but want to make this work for both sides as this is an important long term project to us. How about this…If you were able to commit now to phase two at our normal rates and work with us on a written case study once the project was successfully implemented, that will allow me to reduce the phase one costs to £45k as we can achieve some economies of scale”
That phrase ‘that will allow me to…” is gold dust – it immediately implies that your initial offer WAS fair, but that their potential movement on scope and case study provides you with additional value that you are prepared to share (by giving a reduction in price).
In these ‘win-win’ negotiations you have actually increased the value of the deal for both parties. They have reduced their costs by £5k and you have reduced your project risk and subsequent cost of sale for phase 2. Together with the case study, this is probably worth a lot more than £5k!
Obviously this is a very simple example, but the principle is exactly the same more complex deals
Top 5 Shopping List Tips
- Make it clear what you are asking for – don’t leave it vague eg “extra resources”
- Allocate value to each variable – do you know what the value is to you should the client pay 100% up front? That way you can trade and maintain the value of the deal.
- Ask for what you want first before you offer your own trade. “If you, then I” is much more assertive and clearly links the trades
- Even then don’t give them everything they ask for – eg £45k not £40k in the above example – it shows you are not being a push over and might discourage them for asking for more!
- Don’t ask for everything on your list all at once – keep something back – they might be doing the same!
Summary and final suggestion
An effective negotiation involves movement by both parties towards an outcome with which both are comfortable. So avoid giving something without getting something in return. When you need to move from any stated position, make a conditional offer, such as: “if you are prepared to move on Y then I might be able to move on X”. Having established an ‘in principle’ agreement, you can then make an offer…
The concept of the shopping list and how to use it is a big ‘aha’ moment for many of the participants in our win-win negotiation workshops. From the 1-1 coaching we often carry out after workshops, we know it allows people to immediately improve margin and profitability. Try it out – think of your next negotiation – what might be on your shopping list??
Our negotiation coaching and workshops
We love running negotiation workshops as its one of the ways we can most directly affect our customer’s performance – and we know they work! If you are interested in finding out more about how they might help you or your company then contact us