Negotiating for Success

The ability to negotiate may be one of the most important skills needed to run a successful business. Everything you buy or sell should be considered negotiable, including your rent, office supplies, products, maintenance costs, and employee salaries and benefits.

Many people are reluctant to negotiate because they fear that they will be viewed as being cheap or uncooperative. Some just don’t like confrontation and would prefer to take the path of least resistance. If you want to maximize your profit, put those thoughts out of your mind.



Basic Concept

In business, you will find yourself on both sides of negotiations depending on whether you are the buyer or the seller. Many of the basic strategies can be applied in both directions to help you get the best deal possible. Those who negotiate for a living rely on preparation, instinct, discipline, and common sense as their primary negotiating tools. Over time, street smarts and experience will greatly enhance your bargaining skills.

Preparation

Ideally, you should know the history of the person you will be negotiating with. Understanding their established patterns and strategies enables you to counteract them more effectively. You want to exploit their weaknesses and use them to your advantage whenever possible. If the other party tends to use the same negotiating tactics repeatedly, you can develop your strategies to maximize your strengths and leverage. This isn’t always possible if you are in a retail business that has a continuous inflow of new customers.

Do some advance homework to find out if the other party is working under any constraints that might benefit your position. For example, if they are under pressure to hit sales targets or live within a tight budget, you can use that information to your advantage. Take all the data you have and develop a price goal as your negotiation target. It should be aggressive but realistic, without constraining your first offer. You can always change your target as the negotiation progresses, but it helps to have an objective to drive the process to a conclusion.

Only negotiate with someone who has the power and authority to close the deal and sign a contract. Otherwise, you may find yourself in the awkward position of committing yourself to an agreement that the other party’s boss refuses to honor.

Buyer Strategy

When you are on the buying side of the negotiating table, try these tips:
  • Thoroughly understand the product or service you are purchasing. This will help prevent the seller from bluffing you or making you believe you are getting more for your money than you really are. Make yourself an expert in your niche.
  • Make your first offer low and aggressive, but not ridiculously low. You will never get the product for less than this amount, so set the benchmark at a level that gives you plenty of wiggle room to negotiate.
  • Don’t disclose your budget or how much you’re willing to spend. If you do that, you lose tremendous leverage to get the best number possible.
  • Take full advantage of economic supply and demand conditions. In a slow economy, the advantage usually goes to the buyer because of depressed prices. For example, this is currently true with real estate in many areas of the U. S.
  • Be patient and move slowly. Counteroffers should increase gradually, but enough to keep things moving.
  • Be prepared to walk away if you can’t get the deal you want. This strategy will often spur the other party to make a final move to seal the deal.
Seller Strategy

How you approach negotiation as the seller depends heavily on what you are selling. If you run a grocery store, the margins are small and the price marked is what the buyer will pay. Your strategy must be adapted to your specific situation. Here are a few tips:
  • If you are a sole source and there are no other suppliers for your product, you have the leverage to set prices based on expected demand. This is an ideal situation for any business and the benefits should be fully exploited.
  • Build enough margin into your prices to allow for some negotiation loss. Car dealers expect people to bargain with them, but many people have figured out that they can negotiate deals on furniture, electronics, vacations, and a host of other products. The amount of margin will depend on competitive pressures and your assessment of current supply and demand.
  • Be prepared to trade something in exchange for a lower price. For example, if the buyer is insisting on 20% off, you might consider that option if he doubles the quantity purchased or extends the delivery schedule by several months. Keep all your cards on the table and offer ways to make the deal acceptable to both sides.
The End Game

Make sure your offers and counteroffers are clearly spelled out with all relevant assumptions, terms, and conditions. In most cases it’s best to present offers in writing to make sure there are no misunderstandings. Contractually, a counteroffer rejects the previous offer but keeps the negotiation open. Don’t negotiate with yourself by making successive offers without receiving a counteroffer from the other party.

Do your best to assess the other party’s position and figure out what their objectives might be. You may be able to reach an agreement that satisfies their priorities without sacrificing your own. The best negotiations usually end with a win-win solution that allows both sides to feel like they got the best bargain they could without impacting their future business relationship.

The ripple effects of a bad negotiation can last a long time. You can avoid this by being prepared and patient. Capitalize on your strengths and the other side’s weaknesses, and use your intuition and gut to guide you to a positive conclusion.


Michael Sanibel is a freelance writer specializing in business, marketing, personal finance, law, science, aviation, sports, entertainment, travel, and political analysis. He graduated from the United States Air Force Academy and is also licensed to practice law in California and New Hampshire. Michael wrote this feature article exclusively for Debbie May.com (www.DebbieMay.com), an organization dedicated to helping small businesses succeed.