This act of discussing an issue between two or more competing parties with the aim of coming to an agreement comes up in many areas.
In sales, it is often thought of in terms of big, one time events like contracts, proposals, or commission and compensation plans, but in reality, we negotiate in other simple ways every single day.
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For instance, think of a typical situation you encounter at work such as contributing to a project or participating in a meeting.
Let’s say you shared an idea with your team. Did everyone instantly agree with you? Or did you talk about it and get other people’s input to reach a final decision?
That’s an example of an everyday negotiation.
With big sales negotiations the stakes may be higher, but you’re still using the same skills to state your case and influence the outcome as you did when you tried to sell your idea to your teammates.
A negotiation, simply put, is a compromise. Two or more parties come together, have a discussion, and reach an outcome that addresses the needs of everyone involved.
It sounds reasonable, yet, most sellers either avoid negotiations at all costs or try to get through them as quickly as possible.
Why is this?
Based on a two-year study of sales negotiations from Huthwaite International, there’s good reason to believe this tendency towards avoidance comes from lack of preparation and no formal negotiation process. The study found:
Companies with no formal negotiation process had a 63.3% decrease in net income
Companies with a somewhat formal negotiation process had a 16.2% increase in net income
Companies with a formal negotiation process experienced a 42.5% increase in net income
80% of the participating companies had no formal negotiation process. And 75% of the companies had no negotiation planning tools.
The lack of a formal negotiation process can have major financial repercussions.
For example, without a formal sales negotiation process reps often default to discounts or they “give away the farm” in order to close the deal.
This can result in misallocation of time and resources when it comes to implementing the solution -- this means a lower margin of revenue, which ultimately impacts the bottom line.
If it wasn’t clear before it should be now — you need a formal process for negotiating sales deals!
Typically, there are five general steps every negotiation process should have:
Preparation and Planning
Defining the Ground Rules
Clarification and Justification
Bargaining and Problem Solving
Action and Implementation
We will briefly expand upon each step and then provide three strategies you can leverage to enhance and personalize this process to your selling style and organization.
Step #1: Plan
Preparation and planning is the first step in the negotiation process. This is when you take all of the information you’ve gathered during the other stages of your sales process and apply it to the negotiation.
For example, in the early stages of your sales process, you should have learned what problem or pain your prospect is trying to solve and why they are trying to solve it now.
You should also know who is involved in the decision making process and have a good idea of any objections or issues the client may be thinking about.
Additional questions to consider in your preparation and planning:
Why is the other party negotiating? What do I have that they need?
What do I want from the other party? What are my objectives for the negotiation?
When does the solution (if agreed) need to be implemented?
What is my BATNA (Best Alternative to a Negotiated Agreement)?
Step #2: Define the ground rules
The second step is defining ground rules. In this step, rules and guidelines need to be established.
You can think of ground rules as a framework for the negotiation. It’s a set of expectations and details that suggest the context and environment of the meeting.
Oftentimes, these guidelines come in the form of a simple agenda that answers these questions:
Where will negotiations take place? (Your office or theirs?)
How much time do we have? (Any constraints?)
What are the key items to be discussed? (Issues? Objections? Concerns?)
Will there be any issues that are off limits? (Any non-negotiables?)
What happens if there's no agreement? (Schedule another meeting? Walk-away?)
Putting rules in place before negotiating starts gives both sides an opportunity to share their expectations and then properly prepare for the meeting.
When both parties understand where the lines are and what can and cannot be done, you’ll be better aligned and primed for a more effective discussion.
Step #3: Clarify & justify
Now that rules have been set, a conversation needs to take place regarding the specifics of the deal, especially the price.
In step 3, clarify and justify, the positions of both parties are discussed at length.
Each side will get a chance to explain, justify, and support their original request. This part of the negotiation should not be argumentative, but instead, it should provide the opportunity for each side to educate and inform each other about their position.
As the seller, this is your opportunity to really understand what’s important to the buyer and explore their thinking further.
To help you get the buyer to elaborate and expand upon their thinking, you can use phrases like:
“Can you help me understand…”
“Talk to me about…”
“Walk me through…”
Also, you wouldn’t walk into a negotiation without being able to back up your position, so come prepared with the right questions to get the other side talking and armed with information that shows you’ve done your research and you’re committed to making this deal work.
Step #4: Bargain and problem solve
Essentially, this step involves flexibility but bargaining and problem solving are often perceived to be two sides of the same coin.
Depending on your style of selling and negotiating, you may gravitate towards one over the other but neither is right or wrong. It’s really a matter of perspective.
When bargaining, you indicate flexibility when you include concession rates, added value, trade offerings, initiation of new proposals, and other soft behaviors.
You do this in an effort to come closer to the objective you intended to achieve when you started the negotiation.
Bargaining is more about trying to convince the other party of your demands then persuading them to concede.
For problem-solving, flexibility is usually indicated by a search for better, mutually-beneficial solutions to problems that satisfy the needs, identities, and interests of all parties.
Overall, this approach is more focused on compromise and consensus rather than any one party getting exactly what they intended.
Problem-solving is more about working together to determine the best possible deal to solve the issues at hand.
For example, if you’re in the market to buy a used car you would most likely take a bargaining approach to the situation because you’re less concerned about coming to a mutually beneficial agreement and more concerned about getting the best deal for you at the best price.
Alternatively, if you’re in the market to buy a home and you’ve found your “dream” home but the sellers you’re dealing with have a few very specific contingencies (ex: move in date, you pay broker fees, etc.) you may be willing to apply more of a problem-solving approach in order to come up with a win-win deal that satisfies all parties involved.
Step #5: Implementing
The final step in the negotiation process is to formalize the agreement and develop a plan of action and implementation.
At the end of the negotiation meeting, this means agreeing to what the next step will be, who will be taking action on those next steps, and when to expect those actions to be completed.
Based on the parties involved, this may include getting your legal department involved as well as putting together a Master Service Agreement (MSA), Service Level Agreement (SLA), or Statement of Work (SOW).
Whatever documents used to formalize the agreement, this is where the details of the deal are outlined.
For instance, itemized pricing, list of all deliverables, agreed upon terms and conditions, timetable for delivery, primary point of contact for the project, cancellation policy, etc.
Now that we’ve covered the general steps to include in your negotiation process, let’s explore three strategies you can use to personalize the process.
3 personalization strategies to leverage in your next negotiation
Strategy #1: Prepare your BATNA
What is BATNA (Best Alternative to a Negotiated Agreement)?
The best alternative to a negotiated agreement (BATNA) is the course of action either party can take if all else fails.
In other words, if the negotiation is unsuccessful then this is a fall back plan. Specifically, your fall back plan.
BATNAs apply to various negotiating situations like discussing a rate increase, up-sell opportunities, or more complex agreements like a revenue sharing partnership.
Since every deal has its own set of circumstances, your BATNA will be different for every negotiation. It should be specific and personal to the situation at hand.
Identifying your BATNA in any given sales situation is not always easy, but Harvard researchers have outlined several steps to help clarify the process.
Apply these four steps to personalize your next negotiation:
List your alternatives. Think about all the alternatives available to you if the current negotiation ends in a stalemate. What are your no-deal options?
Evaluate your alternatives. Examine each option and calculate the value of pursuing each one.
Establish your BATNA. Choose a course of action that would have the highest expected value for you. This is your BATNA—the course you should pursue if the current negotiation fails.
Calculate your reservation value. Now that you know your BATNA, calculate your reservation value—the lowest-valued deal you are willing to accept. If the value of the deal proposed to you is lower than your reservation value, you’ll be better off rejecting the offer and pursuing your BATNA. If the final offer is higher than your reservation value, you should accept it.
For example, let’s say you’re a SaaS B2B information provider and you are in talks with a potential client who is qualified and fits your target persona.
The prospect has expressed a strong preference towards your company and the solution you’ve proposed, however, they want you to do “better” on the pricing.
It’s the end of the month and you only need one more deal (this one) to hit your quota.
Your prospect’s BATNA is likely to go with the company that’s the second preference and is less expensive. Your BATNA is likely to offer a discount so you can get the deal done quickly and hit your monthly quota.
What do you do in this situation?
Let’s play it out in strategy #2.
Strategy #2: Practice the conversation
You’ve worked really hard to get the deal to the “verbal yes” stage, but your prospect says: “We are ready to move forward, but you need to sharpen your pencil on the price.”
This is just one of many variations of asking for the same thing: a discount.
Now, you could immediately cave and offer up a discount, but consider your BATNA. Is there anything else you could say or do before giving a discount?
Try the following:
Ask this: “Are you saying you think $10,000 is too expensive for [product] or you don’t want to spend more than $8,500?"
This is a good way to respond because it will uncover whether they are truly sold on the value of your product or if they simply can’t afford it.
Ask this: “What needs to happen to make our offering worth the price I’ve quoted you?”
This will help you reveal any missing links in your case and identify objections that haven’t been raised yet. It also gives you the opportunity to add value to your current offering. If that satisfies your prospect, then you may end up earning full price.
Say this: “I can offer you a discount if we extend the contract by X and register Y seats.”
If the prospect isn’t willing to compromise, this could be a good indicator of what type of relationship you can expect.
Aside from these ideas about what you could ask or say, consider additional non-monetary offerings. When you have levers to pull (like non-monetary offerings) it will help you open the negotiating possibilities beyond price.
Practicing and preparing for these types of conversations will give you the confidence you need to make you a stronger negotiator.
Strategy #3: Sharpen your communication skills
What skills should you hone in on to increase your effectiveness when negotiating?
This may require assessing your current skills to see what areas you need to develop but there are two skills I want you to focus on: questioning and listening.
Effective negotiators ask a lot of questions and are very curious. They want to understand exactly what the other party is trying to achieve.
For example, in a price negotiation, both parties may start off disagreeing because one party has expressed price is the most important thing.
The skilled negotiator, however, realizes that price is only one part of the equation and will often use their questioning skills to delve into the issue at hand.
For instance, you might say:
“I understand that pricing is something we need to address. But before we do, I’d like to make sure I completely understand your needs – that way we’ll know we’re doing everything we can to make this deal as valuable as possible for you. Is that all right?”
Asking questions about a prospect’s personal needs and motivations is the only way you will be able to find out what exactly is important to them and what benefits they are truly looking for.
Equally important is listening. Most people listen to reply, not to understand. An effective negotiator is a skillful listener who pays attention to three levels to learn the information they need:
Selective: Listening for relevancy. For instance, if the other party tells you they are going on vacation for three weeks starting tomorrow. They could signal whether they want to wrap the deal up quickly before they leave, or whether you’ll be left waiting on the sidelines until they get back from their three-week vacation.
Responsive: Being responsive lets the other side know you are paying attention. This involves verbal and non-verbal feedback. That might be a simple nod, or asking “tell me more about that…”
Playback: Restating what you think you heard and asking for confirmation. It is also beneficial to follow up with a confirming question. An example would be “Did I capture everything correctly, or is there something I may have missed?”
Effective questioning and listening skills can help you resolve issues and identify alternative solutions quickly. When you get the other side talking, and by listening, you send a positive message that enhances trust and keeps tension low.
When you do this, your prospects will you more likely perceive you as trustworthy, a valuable partner, and a problem-solver.
Slow down to speed up the negotiation
The key to a successful sales negotiation is to just slow it down.
In the heat of the moment – right in the middle of the sales process – a request for a discount might catch you off-guard.
In your flustered state, and given your desperation to close the deal quickly and help you hit your goals, you might agree to a discount that really isn’t in line with your company’s principles, and really hurt both you and your company’s bottom line.
Any time you’re being asked about concessions, it’s important to take a deep breath, take a step back and truly evaluate how to get to a good win-win state.
There’s no need to rush the negotiation aspect of the buying process.
To create a mutually beneficial agreement for all parties, it requires thoughtful consideration, confidence and collaboration.
Selling is a busy job, especially when you’re winning negotiations and closing deals. But how do you stay on top of everything? Our calendar management guide provides helpful tips for winning the negotiation with yourself about where your time goes.