23 September 2006

Negotiating for potential business

Everyone negotiates to some extent for potential business.

Initially you should sell the value of what you are proposing.

The second key negotiation tool is content - "OK, you want it cheaper, which bit of the proposed activity do you think we can do without"? Sometimes though, there is a stand-off where the potential target says - "I want everything, but I want it cheaper". In that situation you need to give yourself some time.

If you find yourself negotiating specifically on price rather than content, the first thing is to think through your position carefully before the negotiation so that you have considered most of the likely questions and developed a justification for your price. If you suspect that the content issue will not bridge the gap between you and the buyer then you need to have considered what is the minimum you would accept and still do the work. That at least provides you with a context in which the detailed price negotiation can take place.

However, if your target makes an offer anywhere in the acceptable range then it is still a good idea not to accept the offer immediately. I call this break, "going to ask your Mum". There is always a justification why you cannot accept the offer immediately - you need to check the availability of resource, you need to confer with other managers in the business before accepting the offer. Whatever the reason, the break confirms to the buyer that the offer is testing your limits and when you eventually accept, he has the clear impression that he hasn't left money on the table and has negotiated a tight deal.

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2 Comments:

Blogger Dennis Howlett said...

I've never negotaiated on price alone, always value. I've walked from deals rather than be screwed into taking the next job. If the client wants the value I can deliver then they pay the price I think that's worth to them. Sure, there may be *some* negotiation - but it's certainly not going to be price based. Fortunately, that rarely happens because my business model is totally transparent. Clients can run price/value comparisons, take up references to their hearts content, agree delivery schedules, put penalties in for late delivery if they want. If after that they still want to beat me up over price, it's 'no thanks and good luck' from me.

7:53 am  
Blogger John Diffenthal said...

If you can stick to negotiating value then that is perfect. If you go back through my previous posts you will see that we walk away too, sometimes at the proposal stage when the client has asked us to do something we thought wouldn't add value to them.

Unfortunately, too many of our clients refuse to let anyone do their negotiation for them and that leaves them no room for manoeuvre since the guy on the other side of the desk knows that he is talking to THE decision maker.

I was trained by PwC that the key to a successful negotitation was the win-win solution, leaving both sides to think that they had come to a successful conclusion. Hence my enthusiasm for "Getting to Yes", by Fisher, Ury and Patton.

8:29 am  

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