Negotiation comes up in many forms throughout our lives. It is one of the most important skills for any businessperson, but the truth is that we are negotiating all the time: when we look for a job, when we ask for a pay rise, when we negotiate terms with our bank, and even with our own partner.
When we talked about the truths of the art of negotiation, we stressed a false myth: it is not true that good negotiators look for a collaboration that benefits both sides. They look out for themselves, and even when they could give ground, what they do is squeeze harder, because they can.
There are only three situations you will find yourself in when negotiating
- You negotiate from a position of strength: you are bigger, or the other person (or company) is the one more interested in closing the deal.
- You negotiate from a position of weakness: you are the one more interested in reaching an agreement with the other person.
- Mutual advantage: in this case both of you want to reach an agreement to create good synergy in the business. The interest is mutual.
Clearly the most comfortable negotiation is number three, since both sides will be willing to give way on some terms in exchange for the other side giving way on others.
As for the first two, as we said in the previous article, just as in the army, the high ground always wins.
The small fish will have to give way, while the shark will squeeze as hard as it can to get the most out of the deal.
A universal rule of negotiation: “The person with the least to lose has the biggest advantage in the negotiation.” It’s obvious: for one side, nothing happens if the deal falls through, while for the other it could mean closing the business or taking a serious blow.
1. The negotiator with more and better information generally does better
You have to study the other side thoroughly. Sometimes that big company with ten times our turnover, which looks like a shark, actually needs to close a deal more than we do, but, as a good negotiator, it isn’t showing the slightest hint of desperation or excessive interest.
Sometimes big companies go looking for a “sucker” to squeeze. They have a name and the prestige of their brand, and that is their trump card at the negotiating table. For example, in its heyday, El Corte Inglés (Spain’s big department store chain) finished off a great many small businesses.
These small business owners thought God himself had walked through the door when the giant turned up to work with their little company, but in reality they had let the Devil in and accepted the ideal terms for business suicide: goods on consignment, low profit margins and payment terms stretching far into the future. Then the need for more investment before the next squeeze on margins.
Depending on how important the deal is, it pays to know the other company’s accounts, its debt, its current suppliers, its payment methods, any defaults, and even the prices at which it buys and sells.
If the most it wants to pay for our product is 8, and we know it is paying 11 to another supplier, that information is gold when we sit down to negotiate.
2. Ask, and ask again
Negotiation is still a sale, and just as in sales, you gain much more by asking and listening than by talking. In fact, whoever has the least to offer tends to talk the most, sometimes telling a few stories to justify their lack of bargaining power. What exactly does that person want to achieve? What really worries them: quality, service, price…? Before moving on to the “hard negotiation”, try warming up with a conversation to gather information about what that person or company wants from you.
“Thorough preparation is more important than aggressive argument.”
3. Negotiate more often
Many people don’t feel comfortable negotiating, or aren’t good negotiators, for the simple reason that they lack practice. As with anything else, the only way to gain experience is to practise.
Try practising negotiation in your everyday life, and you’ll be surprised at the results you can get.
I once knew a guy who, when he went out to buy a couple of suits, would buy one first and then tell the shop manager: “I was only planning to buy one suit, but if you give me a discount, I’ll take another.” And he nearly always got the discount.
Let’s say the profit margin on a suit is 40 euros (I have no idea). The manager can lose a 40-euro sale if this man leaves without buying a second suit, or he can make 20 euros by agreeing to the discount. And 20 euros is more than 0.
When I asked him whether he didn’t feel ridiculous doing that all the time, he said that, for one thing, he always saved money by paying less than everyone else. And for another, he was always practising negotiation, which is why he was a good negotiator.
4. Avoid the word “negotiable”
We take it for granted that practically everything in life is for sale and that everything is negotiable. Even so, avoid saying “600 euros, negotiable”, whether in a negotiation or in a classified ad.
Also avoid writing “600 euros, not negotiable”. Sometimes a person who knows that everything is negotiable will call you because they are interested in your product, planning to haggle; they may fail to get the price down and end up buying anyway, because their interest is real.
5. A price cut should be your ace in the hole
Although bazaar-style haggling is very widespread, it is becoming less and less effective and increasingly comes across as unprofessional. The routine where one person says 20, the other says 5 to start the game, and they end up settling on 11 may work for buying a watch or a pair of socks from a street vendor.
When we are the ones paying, we should always try to pay as little as possible, and when we are the ones selling, we should try to get paid as much as possible (always within what is fair).
Example:
Obviously, we need to know the most we are willing to pay and the lowest price we are willing to sell at.
In a negotiation where we can go as low as 10…
If you say 20 and the other person says 5, don’t drop straight to 18. No. Defend the 20 until the last moment. Sell the other side on why your product is worth 20, and let them give you their reasons for only wanting to pay 5. If they go up to 10, don’t drop to 18. Keep defending the 20. If they go up to 15, keep defending the 20. And if the other side won’t go any higher and you see there’s no chance of closing the deal, drop to 18 and defend the 18.
They may go up to 16. Then you can defend 17, and if they won’t go any higher, close at 16, which was their last offer.
Afterwards you can tell them: “You fool, I could have gone down to 10,” and maybe they’ll reply: “And you idiot, I could have gone up to 25” :-). That’s the trouble with haggling.
(Read: What you need to know when negotiating with the Japanese: a different world)
6. In any case, try not to be the first to name a number
Sometimes, especially in negotiations where you underestimate yourself because you think you are at a disadvantage, avoid being the first to name a figure: that lack of confidence in yourself or your company compared with the opposing negotiator may lead you to give a figure that is too low.
And the other way round…
Suppose we were planning to say 20, but the other side opens at 25. I imagine you’d accept on the spot, delighted. That’s a mistake.
When people say that every negotiation starts with a “no”, it’s because a quick “yes” can cause you problems. Imagine you walk into your boss’s office to ask for a pay rise of 100 euros a month. Your boss immediately says: “Fine, count on it. Consider it done.”
As you leave, it’s only natural to think: “He said yes very quickly. What if I’d asked for 200 euros instead of 100? Maybe he’d have said yes to that too. I should have asked for 200.”
In a negotiation, a yes that comes too quickly can raise those same doubts, with the difference that the next day you may get a call saying: “After discussing it with my superiors, I’m told we can’t accept that price. It will have to be a bit less.”
7. Avoid the word “between”
In other words, when you put a price on something, avoid saying: “We can sell it to you for between 6 and 8 euros minimum.”
A negotiator’s mind will quickly forget the number 8. For them, the price is 6, and the negotiation will start from 6.
8. Sometimes false modesty is necessary
At the start of some negotiations, the other side will often ask: “Who makes the final decision on closing the deal?” In large companies there is always a person, or several people, who are not at the meeting and who are the key players in deciding whether the negotiation goes ahead. In other words, they are a higher authority that the negotiators must report the outcome to, and who will then decide or call a second meeting, which they would attend.
But the mistake small business owners make is wanting to tell the whole world that they are the boss and the one who makes the decisions. That can be a trap in a negotiation, because if you are the small fish and there’s a shark in front of you, it will try to corner you and won’t let you leave the room until it has eaten you down to the bones.
That is why it is sometimes wiser to use false modesty: you will take part in the decision, and could even make it yourself if the terms are clear, but if certain points come up you would need to talk to someone else. That someone could be a mysterious investor who put money into your business, or an adviser who calls the shots in your company.
The advantage is that it lets you say no to some terms in the third person and think some of the contract terms over calmly. Above all, if you see they are squeezing too hard, it gives you a way out with the excuse of having to consult. And, above all, it stops them cornering you with “you need to give us an answer right now: do you accept or not?”
9. Stay focused on the main issue and don’t let the other side pull you off course
In negotiations, the old saying really does apply: “If you don’t like what’s being said, change the subject.” If you notice the other side wandering off or starting to talk about something that has nothing to do with the main issue, steer them back to the conversation.
It’s common to think that chatting about trivial topics is a good sign, because it shows trust between both sides. But sometimes that small talk is just a distraction that will force us to give the same explanations again later and break the spell of the favourable atmosphere we had created to close the deal.
10. Whatever the outcome, always say goodbye politely
I’ve always kept one thing in mind. Life takes many turns, and you never know when, or in what situation, you’ll meet someone again. You should be polite and courteous with everyone, but even more so when doing business.
Never turn a business matter into a personal one. Even in business you need to be a good sport. Always say goodbye politely and respectfully.
Further reading
- 14 secrets and truths about selling
- The toughest negotiation I’ve ever had, and why it somehow worked out
Featured image: CHOADAICHONG MinuddR, CC BY-SA 4.0, via Wikimedia Commons.
