13 FAQs on negotiating a sale.
- How do I prepare for a negotiation?
- Should I approach negotiations with regular customers differently from one-off deals?
- What should I find out about the customer to put me in a stronger position?
- How flexible should I be on price?
- What can I do to stop the customer negotiating my price down?
- What compromises should I be prepared to make?
- What should I do when I'm not sure whether I need to make a concession to get the deal?
- How should I handle several different negotiating points?
- Are there any psychological tactics I can use?
- What are the most common mistakes sellers make in negotiations?
- What should I do when a major point has been agreed?
- Is a negotiation legally binding before we have written confirmation?
- What should I do if we can't reach agreement?
1. How do I prepare for a negotiation?
At the same time, you also need to think about your own priorities and objectives. Before you walk into a negotiation, you should decide what price you are aiming for any the lowest price you would be prepared to accept. The price you are prepared to accept may also depend on other factors, such as the size of the order and whether the customer will pay promptly.
Plan ahead for any concessions you might be prepared to make to win the deal. Aim to identify concessions that the customer will value, but which are low cost to you.
Be very clear what your final 'walk away' position is. Try to work out what the customer's might be. The person with the stronger walk away position usually dominates a negotiation (see 3).
2. Should I approach negotiations with regular customers differently from one-off deals?
You may want to offer key customers regular meetings to discuss their concerns. This helps improve the level of service you are providing. It can also be a good way of strengthening your relationship - instead of meeting only when you are negotiating terms.
Before any meeting, check through your records. As well as confirming on what terms you are currently dealing with them, make sure you understand what the customer's concerns are. For example, if delivery schedules were a big issue in earlier negotiations, check whether there have been any delivery problems.
You may want to consider offering them special contracts. For example, you could guarantee a fixed price for the next year, provided that their orders are above a set level.
If you have provided good service, you should be in a strong position with existing customers. Even if a competitor offers a cheaper deal, you can point out the risks of dealing with an unknown supplier.
3. What should I find out about the customer to put me in a stronger position?
Try to find out what your product is worth to the customer. This could depend on several factors:
- How they use your product and how high their profit margins are.
- How urgently they need your product.
- What alternatives other suppliers are offering.
Aim to understand as much as possible about what the customer wants and values. For example, one customer might particularly value reliability, while another will just be concerned with the lowest price.
4. How flexible should I be on price?
To some extent, it depends on how high your profit margins are. As a minimum, you want to charge a price which covers your direct costs. You also want the sale to make a contribution towards your overheads.
Wherever possible, you will be looking to sell the benefits of the whole package you offer: quality, reliability and so on. But in a competitive market, you may find it difficult to maintain a significant premium over your competitors' prices.
5. What can I do to stop the customer negotiating my price down?
Start off with a relatively full price, and don't immediately indicate that the price is negotiable. Stress the value of what you are offering. You may be able to justify a high price by itemising everything that's included in your offer.
When the customer asks for a reduction, ask for a concession in return. For example, you might be able to offer a discount for a larger order. Consider too whether there are concessions other than price which the customer would value (see 6).
Keep negotiation on price to last, after all the other points of the deal have been agreed. Before making any price concession confirm that the customer has no further points to negotiate. Otherwise the customer may chip away at your price, reducing it step by step. Don't get drawn into an auction against a competitor.
Make sure you know your bottom line, and stick to it.
6. What compromises should I be prepared to make?
Non-price concessions you can consider include extended payment terms, special delivery, customised products, installation, after sales service and so on. The key is to offer concessions which cost you less than the value the customer puts on them. Otherwise, you might just as well reduce the price.
Never offer the customer a concession without asking for something in return.
7. What should I do when I'm not sure whether I need to make a concession to get the deal?
Test whether the customer really needs the concession. Tell them you'll have to consult with your managing director (or your accountant if you are the managing director) and ask what will happen if he says no.
8. How should I handle several different negotiating points?
Try to establish a list of all the negotiating points, which you can handle one at a time. Agree that nothing is final until all the elements of the deal have been covered. And leave price negotiations until the end.
For major, long-term negotiations, it may be worth agreeing formal 'heads of agreement' which set out the main points of the deal. This helps ensure the customer is committed in principle to reaching agreement.
9. Are there any psychological tactics I can use?
It's not usually a good idea to try to trick your customer into a deal, but there are tactics that may help.
- Before you negotiate, make sure you know your bottom line. Be prepared to walk away if a deal can't be done.
- Don't be too keen. If the customer knows you are desperate for a deal, they will have an edge.
- Try to create a sense of urgency - for example, with a deadline for completing negotiations. You can always postpone it if necessary.
- Invent an adviser you need to consult if you want time to think, or to show the customer you are reaching your bottom line.
- Resist the temptation to keep talking. Once you have said your piece, remain silent and see what they say. They may agree to your terms.
- Try to get the customer to invest time and effort in the negotiations. That makes it harder for them to walk away without doing a deal.
- Show your indifference to any threats.
- Never reveal your travel plans, you'll be kept waiting until the last minute to apply extra pressure. Keep your travel flexible.
Be aware that the customer may use similar tactics.
10. What are the most common mistakes sellers make in negotiations?
Some sellers start weakly. For example, they set a low price, or they make it plain that they are prepared to negotiate. Remember that it's easy to drop your price if the customer shows resistance.
Some sellers will offer concessions without asking for anything in return. In fact, the customer may value your concession more if you have insisted on getting something back for it. Another common mistake is to throw in an unnecessary extra concession after the deal has been agreed.
Sellers sometimes find it hard to stick to their guns. You may find it difficult to resist a customer's threat to use another supplier, or to leave a meeting without having reached agreement. But remember that even if negotiations do break down, it's usually possible to start again.
Finally, some sellers will make promises they can't keep in order to win a deal. This is usually disastrous. Under-promising, and over-fulfilling, is a far better way to build a long-term relationship.
11. What should I do when a major point has been agreed?
Restate it, to ensure that both you and the customer have the same understanding of what has been agreed. Make a written note. At the end of the meeting, shake hands on what you have agreed.
Follow up after the meeting with a letter to confirm what has been agreed.
12. Is a negotiation legally binding before we have written confirmation?
A contract exists when you agree a deal. Verbal agreements are legally binding, but difficult to prove in court. It makes far more sense to put any important agreement in writing.
13. What should I do if we can't reach agreement?
If you can't agree because there isn't a compromise that suits you both, then so be it. Smile and walk away.
If you've both dug yourself into positions where you can't agree without losing face, take time out - for weeks if necessary - and then try again. Look for a new way to repackage the deal.