Negotiation skills are an essential part of smart management. As a small business owner or manager, you can sometimes feel overwhelmed by the limited resources at your disposal when negotiating with a large company. That is why it is essential to learn how to confidently negotiate the best possible deal. The goal is to get your company what it needs without giving up too much in return. Always remember that negotiations are an exercise in mutual problem-solving. Never negotiate without determining the best alternative to a negotiated agreement.
This applies to both sides of the negotiating table. It should answer the question of what the consequences are for each party if they fail to reach a mutually acceptable accord. There are certain tried and tested techniques that can be used effectively in any negotiation process. Getting the best possible price from a major supplier of materials or services is just as important as negotiating the best merger and acquisition outcome.
The following are ten practical tips that will improve your negotiation skills:
1. Look Ahead
Smart negotiators carefully predetermine exactly what they want to achieve from the negotiation. Through careful research and consultation with other team members, they establish a realistic price/value scenario in line with their company’s objectives. They come prepared by investigating the strengths and weaknesses of the company and the person with whom they negotiate.
2. Define Your Own Best Alternative
Always know what the exact consequences are if you fail to make a deal. This involves researching price and value options offered by competitors of the other party. It is a defensive approach that assures that you will never be misled by a slick presentation. Always come to the table with a realistic fallback plan in case the negotiations fall through.
3. Identify the Other Party’s Best Alternative
Analyze what it would mean for the other party to lose you as a customer. Knowing the ratio of your company’s contribution to their overall sales offers possible leverage. It is a strong indication of how aggressively you can afford to negotiate. If you plan to increase purchases in the future, let them know this so that they can realize the full impact of the loss of your business.
4. Resist Emotions
Set your bottom line, or point of resistance as a clearly rational and not emotional one. A good place to start is by estimating the other party’s direct costs in producing or purchasing the products or services offered by them. Knowing their profit margins gives you a better feel for how much give there is in their pricing. References on average costs for any industry can be researched through Standard Industry Classifications (SIC) from online sources such as Dun and Bradstreet (www.dnb.com), (www.bizminer.com). It is somewhat time-consuming but depending on the value of what is at stake it may be well worthwhile.
5. Generate Options
List, and always keep in mind other options for reaching a negotiated settlement with the other party. This prevents careless ultimatums and the creation of impenetrable walls that may have unintended consequences for both parties. Negotiations are a game of give-and-take, and you have to define how much room each party has for this.
6. Look Beyond Price
Never negotiate on price alone, always consider other key factors such as a reputation for timely deliveries, quality of the technical and customer support before and after the sale, the other party’s reputation for quality, etc.. Peace of mind may be just as important as price in many cases. Unreliable delivery and quality may have a significant downside to your bottom line. The cheapest price is not always the best price.
7. High Ball
It is good to remember that once you quote a price you can’t increase it. On the other hand, starting at an unreasonably high price point may cause the other party to question the validity of your offer and flexibility. You must assume that the other party has done their homework on competitive prices. The internet provides access and transparency that greatly facilitates comparisons.
8. Tune In
Carefully listen and observe both verbal and body language. Avoid and do not respond to even relatively mild emotional outbursts. The other party may be just trying to throw you off your game plan. Always steer the conversation calmly back to concrete and practical facts.
9. Draw Last
Unlike a gunfight, good negotiators always make the other party draw first. This is a very timeworn negotiating tactic that still works. Once you put your offer on the table first, you have lost the advantage of knowing what the other party was actually willing to accept.
Time to Walk
Whether you are negotiating the price at a vegetable stand or making a multimillion-dollar purchase, knowing when to walk away is an essential part of smart negotiating. You walk If you have made the best possible offer and the other party refuses to budge. Because you have previously established the best alternative to a failed negotiation, you can walk away with confidence.