Then negotiations began. You were almost done but the customer began asking for the moon and in your desperation to make the deal you gave them almost everything. But you felt cheapened, taken advantage of, by their avariciousness and your own greed. Still, you got the deal done.
Signed contract in hand. What’s the problem?
The last step to finalizing a sale is negotiation. Almost every sale has some form of it. Yet when the deal is eventually done, reps end up feeling bruised and beaten. And from the selling company’s perspective, how much of the farm really needed to be given away to make that deal?
We want the sale and to feel good about the negotiation. We don’t want to feel victimized, or cheapened, or taken advantage of. We want the sale and to end up with an agreement:
- That satisfies both of us (buyers & sellers)
- Where we both happily fulfill the terms of the deal (payment & delivery)
- So that we are willing to buy from & sell to each other in the future
So, how do you get the sale and feel good about the inevitable negotiation?
Recognize and prepare.
Recognize Customer Expectations
Customers expect to negotiate as the final step in their buying process. They may be looking for lower pricing, free extras or better terms but they are looking. In some cultures it’s an insult not to negotiate a sale.
In large, complex sales negotiation has been formalized in the Procurement process. For example, step 5 in A.T. Kearney’s 7 Steps For Sourcing Information Products is to negotiate and select a supplier.
Additionally, in formal bid processes, Procurement will begin negotiations with the best final two bidders.This way Procurement doesn’t lose time if choice number one bows out of the negotiations. They still have choice number two ready to sign. It also provides Procurement one last round of leverage for negotiations with their number one choice.
As a sales rep, it doesn’t sound fair does it?. But that’s how it works, so prepare for it.
Here are a few considerations, though not an exhaustive list. These provide several workarounds to get through that last hurdle before you plan how to spend that massive commission you’ve just earned.
Tactics for Negotiations
1) Free Your Thinking
If the customer begins negotiating after you believed you had a deal then consider the process a new one.
I’m not suggesting you forget everything you’ve offered before their request – I am suggesting you free your thinking up. Don’t keep it attached to having to deliver everything that was on the table before. You now have the freedom to think of new workarounds.
Give yourself the room to explore those alternatives. Considering this a new process within the sales opportunity gives you that freedom. Who knows, but at the end of it your customer may circle back and accept your original pricing, terms, offer.
2) They Ask for a Lower Price –> Re-engineer Your Offer
Change the value of your offering to match any price concessions you may make. This means adjusting scope, specifications, deliverables, schedule to adjust your costs down, which brings down your total price
Whatever you adjust, focus on lowering cost downwards to lower your price, not your profits.
If your customer wants to get into your shorts about how much profit you are making, discuss the value they receive. Your profit is a different conversation from your customer’s Total Cost of Ownership (TCO).
Ultimately, customers should focus on their total costs, of which your pricing is a part, and your profit a small percentage of that entire equation. The amount of your profit doesn’t necessarily effect them, unless of course they believe you are making substantially more than is typical for your industry/offering. But how knowledgeable is your customer about your pricing? See item D below for more about speaking to value.
3) They Ask for a Lower Price –> Add a High-Value, Low-Cost Incentive
Consider offering a value add that costs you little instead of lowering your price the full amount. This is a counter offer with a much smaller discount than they were asking for, but gives them instead a high-value add for them (one which doesn’t cost you as much as the value it adds to them).
This might be adding a smaller, contract service at a 50% discounted price, when added to your total offering reduces what they would pay if they bought it separately. Of course that extra service probably had a profit markup of 75%, so even discounting it by 50% and including it in your contracted service, you’re still ahead of the game.
4) They Ask for a Lower Price –> Ask for Better Terms
Getting better terms is always more important to you than it is to your customers. So if they ask for a lower price, ask for better terms:
* Longer contract terms
You don’t want the business to go out for competitive bid for as long as possible, so ask for longer terms, i.e. five years fixed instead of three, and/or three additional one-year extensions on top of the base contract.
* Early payment
The speed with which you receive payment is more important to you than it is to customers. Although they may not be used to the idea of changing their standard terms that doesn’t mean you can’t ask. So ask them to pre-pay amounts, such as,
–> Deposit to begin work – you don’t start until a hefty down is received
–> Fixed amounts based on time, not work completed ( i.e. 60% down to begin work, 20% in 30 days and the balance on completion)
* More Frequent Smaller Payments
–> 26 payments per year, twice a month rather than monthly (with variable cost pricing you can still bill for estimated amounts and reconcile monthly or quarterly)
4) Know Your Best Alternative to a Negotiated Agreement
It’s best not to be caught off guard emotionally during the negotiation sit-downs. Work out what your Best Alternative to a Negotiated Agreement (BATNA) is before you begin negotiations.
Roger Fisher and William Ury wrote about BATNA in Getting to Yes: Negotiating Agreement Without Giving In
in 1981. They recommend you develop a list of actions you would take if no agreement is reached, improve some of the more promising ideas from that list, and finally select your final BATNA. All this before negotiations begin.
You will be much clearer when a worthy alternative is presented. You’ll know whether you should take it or not.
In the end, BATNA or none, be prepared to walk rather than accepting a bad deal, and of course this means you have to define what that bad deal looks like.
Performance During Negotiations
A) Pause before Responding
Go slowly during customers’ questioning for price concessions. Don’t respond immediately. Literally pause to slow your breathing, which can help take the edge off your anger if you’re feeling hostile to their last minute negotiations.
B) Question for Understanding
Be patient and ask questions to fully understand what they’re trying to accomplish. Are they asking solely for lower price? Or do they want to outsource more risk? Don’t always assume they want to lower price. That’s a good guess but you certainly don’t want to bring up lowering your price if they haven’t.
C) Never give something for nothing – always get something in return
If you don’t ask for something in return customers may suspect you were overcharging them in the first place.
D) Speak to Value
When customers want to talk about your profit and price, refocus the conversation on the value customers receive. This is what they get for what they spend. This means you must know where customers benefit from your offering, and by how much.
Turn the questioning around by asking them “how much liability risk they would be willing to accept for a reduction in your price?” Not that you’d go there, but if they answer you’ll have gained insight about what they’re trying to accomplish, or how desperate they may be to achieve it.
Preparation Before Negotiations
#1: Know Your Customer’s Situation
Sales reps should be doing this as part of their pre-proposal due diligence. Specifically, in the negotiation phase you need to really understand your customer’s business, market, industry, and competitive situation. Are they growing, holding, shrinking? What are their business drivers? Is their budget fat or skinny? What’s the overall health of their business?
These are relatively easy to find out through Internet searches.
#2: Know Your Customer’s Alternatives
Again, part of sales due diligence is understanding what your customer can do instead of buying from you.
Pre-proposal you should seek detailed and intimate knowledge of your customers’ alternatives. These are your competitors and their offerings, if your customers do it themselves in-house, or “No-decisions” of staying exactly as they are before the sales/bid process.
This knowledge includes your understanding of how well your individual contacts are doing as seen by their bosses. Are your contacts well thought of, or on the way out? Also, how well is their department doing, is it well thought of within their organization?
When you begin negotiations you’ll have a better understanding of what they need to get out of the deal and hopefully you can be creative enough to help them get it.
#3: Sell Value
Before you reach the negotiation step, be sure to sell to your customers so they understand the quantified and qualitative value they’ll receive from your offer. This is the sales challenge of your proposal work.
But don’t’ feel bad when customers still try to negotiate with you. Remember they all believe they should, it’s not a reflection on you or your selling. Be thankful that at least they’re considering your offer and you have the opportunity to dance with them in negotiations.
#4: Plan & Prepare for Inevitable Negotiation
Finally, consider that at some point before the sale is finalized you will have a meeting that is only about negotiation. In that meeting, your job is to fully understand what they’re seeking.
If your sale is large, consider not giving them an answer at that meeting. You don’t have to tell your customer that when you first meet them, just know it for yourself. Then during the meeting let them know you want to try and come up with a solution that works for them as well as yourself.
If you go in knowing you’re not going to commit on the spot, you’ll be in a better frame of mind for listening and understanding them. Give yourself that breathing room. Now you can really hear “what” they’re asking first, and then uncover “why” they’re want it. The “why” will give you more insight and help you creatively look for an offer that gives you both what you want.
Prepare for the Final Step First
Since you know there will be a negotiation step or meeting before the sale is finalized – prepare for it.
It’s not only doing your sales work well, it’s also getting your BATNA prepared and getting the right mindset.