Negotiation is one of the most difficult, and in my opinion, poorly understood aspects of the sales process. If there's at least one thing I've learned about leading sales reps, epecially less experiences ones, they do not know how to negotiate effectively. Even if they run a flawless sales process, they give up loads of value after having created so much in everything they did prior. While the customer ultimately gets the better end of this deal, it's not effective for building a business over the long term. Heavy discounting erodes margin and eliminates a business's ability to invest back into their own people, which in turn, limits the quality of the total customer experience.
Image credit: Epic Slow Mo
Here are five "how to" negotiating tips I learned from someone else, that I'm now passing on to you
1. Take price off the table completely.
By isolating price or terms as the sole factor standing between you and doing business with the prospect, you ensure that nothing else has been missed and that if you come to agreement on terms then the next step is to get a contract signed. Many times, when I observe reps begin a negotiation, they don’t triple check that price or terms are in fact the very last factor or factors standing in between them and the close.
2. When you bring price or terms back on the table, make sure you quote the price or terms exactly as they should be quoted.
For example, if your company bills annually, then state the price as annual. Breaking it up into a monthly or quarterly equivalent does not provide you with any leverage whatsoever and makes your prospect feel deceived.
3. When you quote price and terms, do not negotiate with yourself.
In other words, state the price and terms – and the price and terms – alone. Hit mute on your phone, or if in person, zip it. Learn to be comfortable with silence. It is a source of power. If you start discussing anything other than the exact price or terms your prospect – if he or she is a good negotiator – will let you keep going until you offer them a deal that they did not even ask for.
4. When your prospect reacts to the price or terms, they may push back – stand your ground.
For example, the prospect may say, “Wow, that’s expensive.” Or, “Is that the best you can do?” Or, “Is that just your list price?” If and when they do this, your reaction will set the table for the rest of the conversation. Do not, under any circumstances, emotionally react to their pushback. Instead, counter with a question like, “What do you mean?”, or, “Expensive compared to… what?”, or “Why do you ask?”, or, “Huh, I’ve never been asked that before”.
They’ll likely either drop it or they’ll push you to start negotiating. When they do this, reconfirm that price or terms are in fact the very last thing standing between the two of you and that if you come to terms the next steps are to move forward.
5. Instead of pushing your prospect for a price, consider giving them one of two paths related to the investment.
The question that I’ve had the most success with is the following: “Is this a budget issue, or a cash flow issue?” By presenting the negotiation like this, you’re setting yourself up for a tradeoff, not a concession. In other words, you’re asking them to prioritize whether or not the entire amount (budget) is the issue, or the frequency with which payments are made (cash flow) is the issue. This is where your leverage begins. If they come back with Budget, or come back with Cash Flow, follow them down this path but reinforce what the standard price or billing term is – once that’s done, ask, “What did you have in mind?” Or, “Where do we need to be to make this a no-brainer?” Whatever they state, acknowledge it, but don’t agree to it. Assess whether or not this is within your acceptable range of negotiation and if it is, make the tradeoff and close the deal. If not, keep going.
What happens if the prospect doesn’t agree to one of the two paths presented?
Often times, especially with smaller businesses, you’ll hear an additional objection to the “budget vs cash flow” tactic; specifically, the prospect’s answer will be: “It’s both.”
Early in my sales career I used to take complete offense to this. I would push back by telling someone they were overreaching, or to try and answer the question again. You may also feel that guttural reaction – that your prospect is being greedy. Fight against it. Put yourself in the prospect’s shoes. They may very well see all the value that your company provides, but they should also be looking out for their own company any trying to minimize the investment the best they can.
If you do in fact get to this point in the negotiation, you may want to circle back to the question you asked originally and reinforce/ re-confirm that price and terms are in fact the only thing holding the prospect back. You may also want to reframe the question by asking, “If XYZ were free, would we already have you on board?”
If at this point your prospect has confirmed that price is the only thing standing in their way, yet they require multiple concessions...
...ask them to paint their ideal world for you. Usually, once someone does this, you may be surprised how little they ask for. If they ask for a lot, then you have a baseline for negotiation. My tried and true method is generally splitting the difference of the request because it is in most peoples’ nature to come to consensus.
If, however, they still do not agree to move forward, you may be in the unfortunate situation where you ran a less than ideal sales process, missed something along the way, and may in fact need to walk away from the deal. If they’re being this unreasonable now, how many others things are going to be issues? Some people just aren’t capable of being helped, or being helped for a price that makes sense on both sides of the table. Alternatively, you may try the “1 to 10” closing technique outlined earlier in order to get to the heart of the prospect’s remaining concerns.
Lastly, if you’re dealing with a slightly larger or much larger company...
remember – you may have more of an upper hand than you think during the negotiation process. If they do not have a worthwhile alternative to moving forward with the plan you helped them build by investing in your company’s services, then they have little to no negotiating leverage. This is often referred to as the BATNA – Best Alternative To Negotiated Agreement. That’s not to say that you should use this unfairly to your advantage and put the strength of the relationship at risk, but you should have faith that if you have truly helped a prospect think through their goals and challenges and laid out a clear plan to address to those challenges in the timeline required, then they should have every desire to partner with your business. Don’t be afraid to remind them of that either in case they forgot!