There comes a time in every deal when you’ve covered everything and it’s time to reach an agreement. The negotiation strategies you use will help determine whether you win the deal, and how profitable it is.
The problem with negotiation is that too much of it is done ad hoc. Instead, you can have a negotiation plan in place that includes what you’re willing to trade off, what you won’t budge on, and the minimum deal you’re willing to accept. Plus, you’ll do your planning absent the emotional gravity of winning or losing a deal.
By the time you’re done reading, you’ll have concrete options you can use in your next negotiation to maximize the value you get, and the value your client gets.
In this article, I’ll cover:
- What’s the goal of your negotiation strategy?
- On compromises and ultimatums
- The Give-Get Ledger
- How to find your client’s motivation
- Negotiation tactics you can use in your next proposal
What’s the goal of your negotiation strategy?
The goal of your negotiation strategy is to maximize value for all parties.
I’ve had conversations with plenty of clients who think the goal is to get whatever they want. That’s not the case.
Before I tell you why, let’s go back to first principles. Your sales process should quickly weed out the people you’re not especially equipped to serve, which includes unprofitable clients. If you’re squarely focused on what’s in it for you during the negotiation, one of two things is true:
- You have an oversupply of opportunity, and it doesn’t matter if you win any particular deal
- Your profit margin is tight enough that you have no room for compromise
Effective firm positioning should address both, while your business development strategy should bring in enough leads to give you leverage in every negotiation. Which leads me to the first thing you must internalize:
Leverage comes from your willingness to walk away.
Now back to the idea of maximizing value for all parties. First consider the obvious: both parties in the negotiation have things they want, and the sum total is the maximum value potential of the deal. It’ll never possible to capture 100% of the potential value because we’re on Earth and no system is perfect. But there are better and worse deals to be had.
Here’s a picture of how deal value works on a conceptual level:
On Compromises and Ultimatums
Back to something I mentioned earlier. If your view of negotiation is to get as much of what you want, even if it comes at the expense of your client, then you’re not negotiating, you’re giving an ultimatum.
It’s a viable approach, but it’s not negotiation. Again, if you have more demand than you can satisfy, then you’re less likely to negotiate at all. If, on the other hand, you’re using value-based selling and value-based pricing, there should be plenty of margin to allow for compromise in the negotiation process.
By the time you reach the Agreement phase of your sales process, you should’ve identified your client’s motivation and goals. Your progress in the deal will bring opportunities for compromise into focus.
Which brings us to the next big point: negotiations are a collaboration.
The Give-Get Ledger
The first rule of negotiation is “be prepared to walk away.” And the second rule of negotiation is:
Always get something in return for what you give.
A corollary to this statement is that you will never cut the price without cutting scope. Ever. For any reason.
You can think of negotiation as a series of small compromises and trade offs. I call it The Give-Get Ledger. You give some, you get some, and everyone should be happier and better off by the end of it. This is the basis for all trade.
I’ll cover specific tactics below, but you should understand what it is that you really want, and get more of it if you give the client something that she wants.
I’m tall – 6’5″ – and shop almost exclusively at The Gap because their tall sizes fit me (and I hate spending time shopping). Every time I go to the website they have one special or another. Strictly speaking, they keep offering discounts every time I show up, and they’ve trained me not to make a purchase unless I get at least 40% off. They give me a discount, and they get what they want: a lifetime customer.
Experts cannot position themselves like The Gap – or at least they shouldn’t. If your work is valuable enough for a prospect to consider buying from you, then they must be willing to make a compromise – to give something – in exchange. If you give without getting, you train your clients to internalize the idea that your pricing and terms are tentative, and a little pushback will reveal a better deal for them every time.
Final point about The Give-Get Equation: the promise of a future reward doesn’t count as a give. Surely you’ve heard all variety of promises for some future source of value:
- “I’ll refer you to my friends, and I have a huge network.”
- “If this goes well, we’ll engage you for a much bigger project.”
- “We’re expecting cashflow to improve soon, and we’ll make it up to you when it does.”
None of these qualify as gives. I expect all clients to refer me business when appropriate because I do the same for them. Volume can’t make up for bad margins. And if a client can’t afford to pay for the project, wait until they can.
Finding Your Client’s Motivation
I’m a huge proponent of honesty. It’s true that there’s a little game theory in every negotiation, but, overall, honesty is the best policy.
When a negotiation arises, I advocate having an open and honest conversation with your client about what matters to them. I’ve avoided any discussion of price until this point, but we can’t avoid it any longer. For most people, price is the singular focus of their negotiation. Let’s reframe that completely:
Price is a function of all other components of the deal.
With this in mind, it must be true that price is an expression of your client’s other desires, plus their perceived value of your service. There’s a line I use that I learned from Josh Braun (and I’m paraphrasing):
Let’s just put pricing aside for a second. What else do you need to get this deal done?
If you’ve built a strong relationship, most clients will come right out and tell you. But of course, as Dr. House says, “everyone lies.” Or at least it’s safe to assume that you’re not getting the full truth all the time.
The more focused your ideal client profile, the more likely you are to see patterns in what your clients want, and how they approach negotiations. Company size, number of stakeholders, industry norms, and the titles of the people involved will provide clues about the type of negotiation you’re in for. Here are a few common motivators:
- Getting a discount so they can look good to their boss
- Showing faster results
- Having flexibility in the contract
- Limiting risk and potential downside
- Increasing certainty and/or the duration of your relationship
- Breaking up the project into smaller projects and payments
- Delaying spending to meet budgeting constraints
Every client is different. Before you consider changing anything about your proposal, make sure you at least attempt to uncover your client’s motivation.
Todd Caponi of The Transparency Sale has a great approach to transparency in the negotiation process. He advocates that you start by telling your client what’s important to you and invite them to open up about what’s important to them.
This is a great time to slow and down and be patient. Not all deals are urgent, and if you’re talking to the right person and offering genuine value, they’ll take an extra day or week to reach a better agreement. It’ll be worth it for everyone.
Negotiation Tactics For Your Next Proposal
Let’s now dive into the negotiation tactics that can make your strategy work. After you read this article, gather your executive team and to discuss the things that are important to you, what you’d be willing to give up, and what you’ll never trade.
Jeb Blount called this a negotiation playlist on my podcast, and it’s close to what I’m recommending here. Going into any negotiation, you should’ve already made key decisions about the Give-Get Ledger that make sense for you. It’s important to make these decisions absent the emotional vortex created by live deals. Instead, set a negotiation strategy and stick to it.
In this section, I’ll walk you through the negotiation tactics that you can use as a baseline to decide on your own Give-Get ledger.
Typically a negotiation will begin with a focus on price. Reframe the discussion immediately to discuss other parts of the deal, knowing that price is a function of all other components of the deal.
Since that’s the case, it makes a lot more sense to talk about other components, and set pricing aside until other key decisions are made. Pricing will naturally follow.
Your Give-Get Ledger could include some or all of these options:
The most obvious place to start is scope. I generally recommend you present three pricing options in your offer, so that should create a starting frame for any scope changes. Your options should be grouped as large, medium, and barebones solutions with prices to reflect the amount of value you deliver.
Changing what you’ll do is the typical starting place. If your firm came to me and asked for training for a large team, I could add more or less topics, more or less customization, more or less coaching.
Who does it can be another point of negotiation. For production-based firms, I see options of good, better, and best people for projects. I don’t advocate this approach because it undermines your firm’s positioning, whatever it is. If you’re competing on a “we’re the best,” message, why did you hire anyone who’s less than the best? However, if you sell inputs – like staffing firms – then this could be an option for you.
How much you provide is another lever in your scope. If your firm does web design, you can change the number of pages you design in the project without completely striking out the design components of your scope. Feedback rounds can also flex to make projects more affordable.
Every project comes with the question of when. Depending on your business, when you deliver can have big implications for your client. Conversely, your client’s internal deadlines can create urgency that increase your leverage in the negotiation, too.
The project start date can be valuable for you and your client. Some clients may value a sooner start date. Whereas you may value a later start date if your resources are constrained, or want to smooth out the ups and down of project-based work.
Clients with urgency will value sooner end dates. If it’s valuable to them, you can charge for it, or make other tradeoffs in exchange for flexibility.
The duration of the project should affect the price, too. The longer you take to do something, all things being equal, the less it’s worth to clients.
How and when you get paid is a favorite lever for me. Generally, you prefer to get paid now rather than later, and a higher percentage now.
The number of payments is the first place to start. Projects are typically priced upfront, or with milestone payments.
Net terms will help you get paid faster. If you work with big companies, they’ll often ask to pay you Net 30, 60, or 90. An easy alternative is to ask to be paid upon receipt of an invoice, or before pre-scheduled dates.
You may also increase how much you get paid upfront. I like this, because it’s good for cashflow, and is typically an easy win for both parties. Getting paid more or all of the project fee upfront also makes you a more objective advisor.
Marketing rights may be valuable to you. Larger companies (and their lawyers) are usually opposed to this if the work isn’t public. If that applies to you, you can ask for marketing rights, like case studies or using your client’s logo on your website. Alternatively – and it’s my recommendation – you can include a mandatory clause in your contracts that allows you to market your work with your client, forcing them to opt out of it rather than opting in.
Referrals have tremendous value. Again, you can ask for this in the negotiation, but organic, unforced referrals are always more valuable, so I don’t recommend you ask for referrals as part of your negotiation.
Freebies can sweeten a deal and cost you nothing. A freebie may be a small, high-value engagement you can throw in, or better yet some intellectual property that has zero marginal cost to you. Books, trainings, tools, or other forms of intellectual property can have huge value to your clients without any additional cost to you.
It’s the moment you’ve been waiting for! Yes, you have to reach an agreement on price, but hopefully you’ve exhausted all other aspects of the deal before you entertain a price reduction.
Everything starts with your pricing options. Options may be priced 3x/2x/1x, or 5x/3x/1x, or 2x/1.5x/1x, or similar. The main idea is that you can set parameters for your negotiation before it ever happens by creating pricing tiers that decrease in value. If your client wants the 2x options for the 3x price, ask them what’s important in the 3x tier and begin your negotiation from there.
More volume may impact pricing. If the client buys more from you, it may make sense to reduce pricing per unit. Keep in mind that you should be value pricing, and avoiding these conversations completely. Still, if you’re willing to operate on a smaller margin, this is possible, but I’d always advise you to focus on charging more for less effort and more value.
Commitment may also impact pricing. Longer client commitments will help with business planning and, often, profitability. If you have a recurring service, you’ll get better and faster at it, and longer commitments help you build capacity and make hiring decisions.
Now you’ve seen 15 negotiation strategies that you can use in your next deal. Here’s what I recommend you do, either by yourself or with your team:
- Write out the full list of things you’re willing to give
- For each give, write out what you want to get
- Create a list of terms you aren’t willing to budge on
- Prioritize the gets in each category
- Group them based on client type (if you serve more than one type of client)
Once you complete the exercise, congrats, you’ve built your Give-Get Ledger. Having it documented will make negotiations less emotional, and provide more autonomy to you and your team during negotiations.
For further reading on negotiation, I have some recommendations in my best sales books article.