How to negotiate better deals
Negotiation is an essential business skill, useful in many situations with clients, suppliers, employees and associates.
This discussion on how to improve our negotiation skills was led by Tom Lewis FCA.
Tom is a Commercial Performance Improvement advisor to businesses who helps businesses grow strategically through both organic and acquisitive change and has held positions as Commercial CFO / COO in Private Equity SaaS, B2B Consultancy Services, Marketing Services and Law.
Pricing, self-worth and self-confidence
Talking about negotiating skills in small businesses almost inevitably leads to questions about business structure and pricing which are directly affected by our feelings related to money, self-worth and self-confidence.
Self-confidence is a key element in success and there are many ways to improve it so if this is a factor that is holding you back its worth working on!
Before you start negotiating …
Before getting into any negotiation it’s a good idea to figure out how important it is to get your own needs met v. how important it is to maintain a good relationship with the other side.
- What do you need?
- What does the other side need?
- What concessions are you prepared to make?
There are five key styles of negotiation
Familiarise yourself with these different styles and try to figure out what style the other side will use and how you will respond.
Do you hate hagglers?
Haggling isn’t really about negotiation and is often a sign of inexperience. It’s taking an extreme stance with the mindset of win some, lose some. People who haggle throw lots pf demands into the mix. They’re usually shameless but probably have the aim of getting you to meet them halfway – which may not be obvious at the start.
If you go into this situation expecting someone to play fair it may come as a shock and throw you off balance but having a very clear idea of what you want can often turn it around.
Compromising
Compromising may mean that you’ve got the main deal so are comfortable compromising on the peripherals. For example someone has agreed to your fees, but they may ask you to compromise on the payment terms. It’s important to know before you start what your points of compromise will be.
- What are the things you can’t move on?
- What’s the scope for negotiating?
- Is trust an issue?
Win : Win
You may think this is always the best outcome for everyone but there will be people who prefer to win by forcing you to lose – usually when there is no ongoing relationship to protect. If you come across this you must be very sure of what will make you walk away.
What’s your red line position?
You may be really busy and not need any more work but someone asks you to squeeze in an extra project. Your red line may be that you’ll only do this if they’re prepared to pay extra to make it worth your while or there’s no deal.
Win : Lose
This position is usually associated with a transaction like buying a house or car. There is no on-going relationship to protect so going all in for what you want and asking for concessions when the main deal is done is fine, depending on how much you want the item. Again, knowing your red line will help you walk away if you can’t get what you need.
Negotiating on price
We’ve all had conversations where a potential client says they really want to work with us but they just can’t afford our fees.
In this case your killer question might be: “What can I do to show you the value of what I’m offering? If, as a result of working with me your business increases by x amount, what would that be worth?”
The answer will almost certainly be a lot more than your fee so the negotiation is about persuading the client to see you as an investment rather than a cost.
Discounting
Have a discount policy carefully worked out before going into any negotiation. Do the maths and make sure you’re not eroding your profit margins.
Your time is not free. If one of your marketing tactics is to have “free” consultations before a client signs, this should be factored into your marketing costs and measured against results.
Friction is a lead qualifier
People who don’t like negotiating or want a less time intensive strategy often package services or deals to make choices easier. This can be designed to reduce friction but it’s worth noting that there must be some friction to get an active choice and commitment from a client. The reason so many free offers don’t work is that there is no friction therefore no commitment.
After action report
As with all business activities it’s a good idea to take time to review what worked and what didn’t. The key question here is “Did I leave money on the table?”
Other questions are:
- How do you feel about the process and the result? In our discussions a very strong preference emerged for doing business in a way that aligns with our values, so winning comes second to how we feel about winning and how we handled the process.
- Is the process getting easier? If you’re improving your competence and confidence and feeling more comfortable about negotiating that’s great. If it continues to be a problem it would be worth going back to looking at the issues of self-worth and self-confidence and getting help to work on those.
- Is your pricing strategy and business process enabling you to make the most of opportunities or do they need to be reviewed?
As always, get in touch to discuss any of the issues raised here and if you’d like to explore the topic further we’ll invite Tom back for another session.
Tom Lewis
Tom has led merger and acquisition deals for plcs and owner-managed SMEs, cost-effective market exits and successful business mergers / integration, is experienced in leadership and influencing decision-makers at board level through both analysis and negotiation, increasing commerciality, coaching staff to improving pricing, volumes and productivity, cash flow management, cost reductions and strategic restructurings, and refining finance systems and management information for swifter, better decision-making.
Tom holds a BA in Russian Studies and spent a year in Russia and Ukraine and is a keen amateur wine blogger.