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How to negotiate
How to negotiate
Successful negotiating is not just about money. Striking a good deal means agreeing terms that will help your business in the long term - not just the day you sign a contract.
Whether you're negotiating with a supplier, a customer or an employee work out what the deal means to you.
- If you're talking to a supplier how vital is the service or product they're offering? Calculate how much money it could save or earn you in the long-term.
- If you're negotiating with a customer how important is the order? Will it lead to repeat business and how will it affect your cashflow?
- If an employee has asked for a pay rise what will happen if they don't get it? Will you be able to cope if they leave?
Your action plan
The Institute of Directors recommends drawing up a list of objectives.
- Calculate your ideal price and the cut-off point - the lowest you'll accept if you're selling and the highest if you're buying.
- Decide how much time you are prepared to spend negotiating.
- Think of all the possible points the other side might suggest and decide how you would react to each of them.
Do your homework
Find out what the customer, supplier or employee wants. What is more important to a customer: price, punctual delivery or quality? Does a staff member want more money, or would the chance to work from home make them happier?
Consider their alternatives: a customer might go elsewhere, an employee find a new job. How much can a customer pay and how urgently do they need your product? Will your product save them money? A supplier, for example, may be desperate to clear old stock.
Remember that every customer and supplier is different. The same product could be worth much more to another client.
What's negotiable?
Appearing to be flexible is an important part of successful dealmaking. Decide in advance what is negotiable and what is not.
If the person you're dealing with doesn't have the authority to "sign off" a deal of the size you're suggesting break it up into several smaller amounts. If the company has used up its budget for the current year see if you can push the deal into the next financial period. If there's no money left in one particular kitty try to rename your proposal - instal a product so that it's paid for out of a "service" budget rather than treated as "goods".
Think of what you can offer the other side that might be worthwhile to them, but not so important to you. A customer might value free delivery, for example Or you could give an employee shares rather than a pay hike.
Always think through the implications of what you're doing. How will your other customers feel if they hear you've been offering a discount and will all your staff demand shares if one person gets them?
The right team
Your negotiating team should, as far as possible, match the other side in seniority and style. Make sure you have an expert to negotiate in specialist areas - for example, a new overseas market.
Write down your strategy in advance and give each team member a copy. Think about how to defend the weaker sides of your argument. If you're negotiating with a supplier mention their rivals so that they know you are aware of alternatives.
If you're asked for your minimum price say it depends on the size of the order. Ask lots of questions and listen to the answers. Don't be aggressive and use positive words such as "fair", "reasonable" and "better value".
Set deadlines if you think you've hit a stalling point, but be prepared to shift them. If you need time to think invent a partner or adviser you want to consult.
Even if you're sure you've got the upper hand make the other side feel good about the deal. Stress the benefits and don't be greedy. A fair price is more likely to cement a long term relationship. Once you've reached agreement summarise the details and shake on it.
Business Link www.businesslink.gov.uk
Institute of Directors: www.iod.com
ACAS www.acas.org.uk/
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