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Introduction
Every business owner needs to learn how to negotiate. Why? Because the ability to influence others has a massive impact on your bottom line profits. If you negotiate up your price, you earn more per hour. If you negotiate down your supplier’s price, you reduce your costs.
Everywhere you turn there are opportunities to put your negotiation skills to effect, for the benefit of your business, your profits and ultimately your lifestyle. The first rule is: EVERYTHING IS NEGOTIABLE! In the strictest of terms this is not always true. But by adopting this attitude, you will make better deals and are less likely to miss opportunities all around you. In addition, you will make more deals because you and the other party will have a deal acceptable to you both. If you view someone’s offer as set in stone, you will not conclude the best deal. You may wish to purchase the product and the seller wants to sell it. Yet you do not make an offer because the price tag is too high. However, the seller may be prepared to sell at a price that is affordable to you if only you had asked. Save yourself a lot of time and money by learning the skills of negotiation. It will help you in your business and private life – guaranteed! What follows is the 27 most important things you must know about negotiation as an IT professional.
#1. Never accept someone’s first offer
If I make a deal with someone, my first offer is usually just a starting point for negotiation, not where I expect the deal to be concluded. But if you accepted my offer, I would have made a bargain and you would have left money on the table. Don’t do this! Let me give you an example: I remember a while back, as my business was growing, I went to look at a second-hand car. The guy advertised it for $15,000. I asked him his lowest price over the telephone and he said $14,500 and he would put two new tyres on, as the existing ones were worn. I agreed to have a look at the car on that basis and it was in excellent condition. In my mind, I knew that even at $15,000 I couldn’t get the same car at anywhere near that price. However, I was out to get the best deal I could and protect my own interests. So I said, “I like the car but I haven’t looked at any others yet. I’ve got 2 more that I’m looking at today and a couple more tomorrow. So I can’t compare your car to any others to benchmark it. There are two things I can do. I could make you a lower offer now, in which case you will definitely sell the car, or I can have a look at the others and possibly come back to you. Do you want me to make you an offer? What do you want me to do?” He said, “So it’s a bit like taking a gamble. I get a sale today or hold on for a possibly higher price. Go on then, make me an offer.” I said, “Well, I have the money sitting in my bank account right now and can pay in full as early as Monday if you like. I’ll give you $13,900 for it, without me looking at any other cars. It’s a risk to me but I’m also a bit lazy so it’s up to you.” He thought for a minute, asked his girlfriend and said, “Ok, it’s a deal!” I got a bargain! The next nearest car at the same price was around the $16,500 mark. He didn’t challenge my first offer at all. If he had done so or even refused to have budged, I would have paid the already discounted $14,500. I saved myself $600 for about 1 minute of negotiation. But he lost $600 for accepting my first offer. All he had to say was these magic 7 words: “You’ll have to do better than that.”
#2: Higher Authority 1
Never tell someone that you make the final decision. This is often referred to as the “Higher Authority” and it goes like this… Supplier: “I’m sorry but we can’t cut the price of our XYZ widgets. They are discounted to $1,500 as it is.” You: “That’s a shame. I’m authorised to spend up to $1,400 but no more. I could put an order through right now if you can give it to me at that price. Otherwise I will need to refer the matter to my boss and I know how tight he can be.” This puts pressure on the supplier to give the lower price. If you were the final decision maker, they might try to persuade you that their product is worth the higher price. This tactic reduces their power because you can always just say, “I agree with you but my boss told me what I can do and he won’t budge.”
#3: Higher Authority 2
Rather than referring to a boss as a higher authority, you can always refer to a “committee.” You: “I’m authorised for all spending on items up to $1,400 but anything over that has to be referred to our monthly committee, where they vet all these deals. If you knew them like I do, you wouldn’t want it discussed there. They seem intent on cost cutting but I want this product! Let’s try and avoid that.” #4: Good guy, bad guy
This is a well known tactic and works as follows: “I really like your product and would love to buy it but my partner just doesn’t think the same way. He says its way too expensive and that we don’t need half the features. Is there anything you can do that will make this offer more attractive? If we can work out a better price I’m sure I could persuade him to go ahead.” The benefit of this tactic is it lets you stay on the good side of the person you are negotiating with. You can negotiate hard but always maintain a good rapport between the two of you. It’s your partner or boss who is the awkward one, not you. In addition, it is hard to negotiate with someone if they are not there.
#5: The “Ouch!” Tactic
You ask someone for their price and you say, “Ouch! Is it really that expensive? That’s much more than I expected.” This puts pressure on the supplier to revise the price downwards. They want a sale and if they see that you are shocked at the price, they may consider discounting it downward. After all, to make a deal the price has to be acceptable to both parties and in most cases you can always choose an alternative supplier.
#6: Nibblers
You get to agree on a deal: “Yes, that’s great. We can do the work for $650 per day.” Then, you add on a little extra: “Oh, and our travel expenses are $0.50 per mile.” They say, “Er, Ok, fine. Lets sign up.” Then you add, “Oh, I almost forgot. We also charge for lunch expenses.” They say, “Well, we don’t normally do this but go on, we’ll make an exception in this case.” It is more difficult for the other party to object to this as it’s only a little bit extra and they don’t want to risk jeopardizing a nearly completed deal. They may rationalize that it’s only a tiny bit extra and so they will avoid confrontation and agree. People using this tactic are commonly referred to as Nibblers.
#7. Countering the Nibble
You have to recognise the Nibble for what it is. The best way is to be direct. You say, “Oh, come on! You’re really not going to make me pay for your travel costs too are you?” This makes you look a bit of a cheapskate so you might end up saying, “Oh ok, tell you what, we will skip the travel costs in this instance.” If the shoe was on the other foot and it was you doing the buying, it might go something like this: Supplier: “Fine, so that’s $8,000 for the Server, 5 PC’s and installation. Oh, and there’s an extra $50 for delivery.” You say, “Oh, come on! You’re not going to make me pay a delivery charge are you, when I’m giving you THIS much business?” #8: Overcoming blocks
Quite often you and your client will come across an issue that prevents any progress being made. This is where you can use the “set aside” technique. For example, you say you will only do work at your premises while the client wants development work done onsite. You may have a policy of keeping all developers at your premises and only have them visit the client for support, installation and taking a specification. But they want them working there full time. You can explain all the benefits of them working at your premises, such as having all your tools there including reference material, knowledge base, ready made code etc. But the client insists on this issue. You say:” I understand exactly how important working onsite is too you. Tell you what, let’s set aside this issue for now and come back to it after we have discussed all the other issues.” This establishes momentum in the negotiation. When all the minor issues are out of the way, the potential deal breaker often dissolves and can be overcome. If you get stuck on this early on, it makes the deal less likely to go through. #9: How to avoid conflict and agree
When negotiating with clients, it pays to avoid conflict. One of the easiest ways to do this is to agree with your client. However, sometimes you need to persuade your client to another point of way, but do it gently and smoothly. Being blunt means they can loose face and they may dig in their heels to prove their point. This is where the “feel, felt, found” formula comes in. Let’s take an example. You are recommending a new network installation and your client has heard that a Microsoft solution is best. However, you are a reseller for Novell Netware and that is the solution you wish to push. The wrong way… Client: “I think I’d like a Microsoft network solution.” You: “Novell is much better because of blah blah…” (Client switched off at this stage, as they are more concerned with appearing right than listening to your sage advice.) Client: “That’s not what I heard. I was told Microsoft is best and that is what I want.” (It’s ultimately their decision and they don’t want to appear stupid.) The right way… Client: “I think I’d like a Microsoft network solution.” You: “A lot of people feel that way and Microsoft do an excellent networking product. I felt that way too for quite some time and I used to recommend it. Yet recently we have found Novell has some innovations that make it well worth a look.” Client: “Ok, tell me some more about why I should go with Novell rather than Microsoft.” Much smoother, much more palatable and much more persuasive.
#10: “You’ll have to do better than that!”
When a supplier gives you a price for a service, respond as follows: “That’s too much for us. You’ll have to do better than that!” This puts pressure on the supplier to give some concession, perhaps absorbing the delivery charge or something similar.
#11: Invent a principle
Say to your client, “We always ask for 50% of the project cost up front when dealing with a new client. In return we give a discount of 3%.” In effect, you have invented a principle. If the client challenges this, you have something to negotiate with. You can trade off the 50% up front for payment for the discount. Or, if the client asks for a larger discount, say, “We are already giving a discount for paying 50% up front. If you like, we can give you a larger discount for a larger proportion paid in advance.” The client may say, “We still think the price is overall a little too high for us and we wouldn’t want to pay more up front.” If they take this tougher stance, retort with “If you are looking for a larger discount, we could offer you no more than 5%, but in return we would be looking for a fast project turnaround without delays in getting feedback from yourselves.” The client may agree to this, thinking that they also wanted to complete the project quickly. In effect, they think they have struck a good deal. What you actually did was invent another principle, that fast project completion was something that would benefit yourselves and that you would trade in this concession for the larger discount. The reality is you would have been happy with 5% off to just get the business, but you could not give more discount away for free without some fight. That way, the client feels they have haggled a good deal and that if they ask for an even larger discount, you would be looking for something in return. Invent a principle so that it seems like you are making a concession in return for something from the client. But also remember making up a legitimate sounding principle can be used later as a bargaining token. Examples of other principles include: • We only ever do work on a fixed fee
• We charge by a half day as a minimum
• We always charge for travelling, meals and accommodation
• Payment is due in advance for all training
• Payment is due within 15 days for all training
• We always carry out development work at our premises
• We charge an additional “onsite fee” if you want a programmer to do the work at your premises. #12: Put time pressure on your client
If the client wants the services of an IT professional, they have all the time in the world to decide when to have it done. Regretfully, this can lead to apathy, changing priorities and ultimately the project being postponed indefinitely. Or sometimes, if they delay the decision, other options or competitors may enter the fray. To help combat this, you can say to your client, “We will be in-between projects in about 10 days time. If you want the work done, we would really need to know within the next few days. Our programmers will be looking to fill that space and we get enquiries everyday.” What you are saying to the client is, commit yourself now or risk not having the work done for quite some time. If the competition hasn’t yet become involved, the client doesn’t have any other offers against which to compare. They may say amongst themselves, “They seem a professional and reliable outfit to me. Let’s give them a try and see how good they are. We need the work done and we don’t really want to risk waiting.” Also, if they know your programmers are not working, they will want to negotiate a lower price.
#13: Never “split the difference”
Quite often while negotiating on price, one side will say, “You want $4,000, but we only want to pay $3,500. Tell you what, why don’t we split the difference?” This is a mistake. They have disclosed a price they are willing to pay and it leaves you room to negotiated against it. You reply, “You’re saying you are willing to pay $3,750, right? But I really don’t think my boss will agree to that. (higher authority) If you could add just a little bit more to the price, I’m sure my boss will consider it. How about we go for $3,900?” See what has happened? Instead of negotiating between $4,000 and $3,500, the negotiation has moved to between $3,900 and $3,750. This is closer to your $4,000 than your clients $3,500. And it is even closer than if you offered to “split the difference.” In that case you could both be negotiating between $3,750 and $3,600. You are $150 in the wrong direction! So, never offer to split the difference!
#14: Concessions should be reciprocal
Never give something away for free. If you agree to lower your price, ask for something in return. If your client wants a discount, ask for money up front. If they want emergency work at short notice, charge a higher price. One thing I have learned in business is that if you give something away for nothing, the receiver just takes. I used to believe it cemented good will. It doesn’t. It just makes you poorer. Believe me, it is true. The thing that cements good will is providing good service, but you charge for that. So, nothing for nothing, as the saying goes.
#15: Negotiate tough to get soft opposition
Some people fear that taking a tough negotiating stance will make your opponent tougher. Wrong. In most cases, it actually softens them up. In fact, if you are soft you have to work harder to get the same amount of business than if you adopted a tougher stance. I wish we could all be much softer with each other. When I first started my consultancy, I adopted a soft stance. Clients used to ring up for free advice and I used to give it. If my appointment went on longer than they asked, I would not charge them for the extra time I was there. Where did it get me? Nowhere! And my clients came to expect work for free. That is not a precedent I recommend if you are serious about making good money running a computer consultancy. You have to be tough. The business world can be cutthroat and you have to survive. Staying soft will mean you will always be mediocre at best, bankrupt at worst. #16: The Strength of the written word
There is something powerful about having something in writing. It appears more binding and final, and can be used to persuade others. Let’s take an example of your terms & conditions of business. A client says they don’t want to pay for any extras. You can fax them a copy of your terms & conditions, highlighting the relevant section and state… “We always charge for travel, meals and accommodation. You can see this in the section we have highlighted for you.” In most people’s minds, this appears final. It is stated in writing, it looks as though this is your standard approach and that getting you to change that will be difficult as it means revising your terms and conditions. Contrast that with a verbal discussion. It is much easier for the client to say, “Well, that may be your normal approach but we don’t want to pay for that.” They could say this in either event but having it in writing gives you more power.
#17: How much off?
When negotiating with suppliers, the phrase “How much off” can be very useful. They may have a standard price for their products and services but you can ask for a discount by making a concession. Examples: • How much off for cash?
• How much off for two (three, four, bulk)?
• How much off for customer loyalty?
• How much off for a new customer?
• How much off if I combine purchases?
• How much off for all the business I have given you?
• How much off if I collect?
• How much off if I skip the warranty?
• How much off if I refer you to one of my friends?
#18: Ever decreasing concessions
Whenever you make a concession, ensure the trend is to smaller and smaller concessions. Why? Imagine the opposite. Your client pushes you for a concession and you give one. Then they push again and you concede an even larger one. The temptation for them is to keep pushing as you are giving a larger concession with each round of negotiations. Better is to concede less and less, the more they push. This sets the trend towards very little else being conceded for any more squeezing on their part. In other words, you hone in on a point where you will not concede anything else.
#19: Reciprocation
With an existing client, you may have done some work at a discount or even for free at some stage. If so, mention this at the negotiation stage. Client: “We think your rates are a little high on this one.” You: “This is a competitive rate for this kind of work and we gave you a discount last time. We even did some work for free. We can’t afford to keep on doing that. Surely you don’t want to squeeze us again?” This ploy aims to make the client feel guilty. If you have a good working relationship with your client, this approach is more effective. You are putting the law of reciprocation in to effect. This social rule states that if you do someone a favour, they owe you in return. Not everyone abides by this but it puts pressure on the other side and that is all you can expect in any negotiation. Alternatively, you can use this against your regular suppliers. Supplier: “This will set you back $3,450.” You: “Isn’t there anything you can do to shave that price down? After all, we keep on using you and must have spent a fortune with you over the years. How about a loyalty discount?”
#20: Promises of future business
When buying from suppliers, you can always say the following: You: “If you can give us a special price on this order, we are likely to use you regularly. That could mean a lot of business for your company. What can you do for us, price wise?” As a computer consultancy, we hear this one all the time. If it sounds convincing, we may very well cut our price. After all, we are in it for the long hall and if we can add a profitable client to our books, we will do so. #21: Trade for a minimum spend
When a client pushes for a lower price, one tactic is to grant this but only if they spend a minimum amount over a period of time. For example, suppose you are selling PC support services to a local business. The conversation goes something like this… Client: “We find the price for this support a little on the high side. I don’t think my boss will agree to it.” You: “How often do you think you might use us? Would it be only a one off or several times a month?” Client: “I’m sure we will use you regularly. Our IT department consists of one IT manager and he is rushed off his feet.” You: “In that case, we could give you a discount subject to a minimum spend. If you agree to use us for a minimum of $1,000 per month for the next 12 months, we will give you a 20% discount. How does that sound?” Client: “I’m not sure my boss will agree to being tied in for 12 months, but the price is more reasonable.” You: “That’s not a problem. If you decide to stop using us at some point during the 12 months, just pay us back the discount. That way you can get out of the arrangement should you want to.” Client: “That sounds reasonable. I will put it to him.”
#22: The “Year end budget” tactic
Quite often your client will reveal that they have some money left in the budget and that it has to be spent quickly. Their new budget starts in 4 weeks time and they want to make use of what is left. Knowing this, you can scare your client into thinking you cannot do the work before their budget deadline unless they get their order in quick. For example, You: “You mentioned you have 4 weeks in which to spend your remaining budget. If you want us to get this network upgraded, we will need to know quickly. We can shuffle some of our work around to fit you in but leave it much longer and that could prove difficult.” Client: “Ok, I will speak to accounts and see if they can get it authorized today. When is your absolute deadline?” You: “Yesterday!” (with a smile)
#23: Red Herring
A red herring is used either as a persuasion tool, or a bargaining chip to be later traded off during negotiations. Rather similar to an invented principle, it can be anything used to distract the other negotiator and put them under pressure. It is often difficult to know when it is being used against you because you don’t know what is important to the client and what is not. Let’s look at an example and you can see what I mean. Client: “We have a company policy that we will only deal with suppliers who are Microsoft accredited. Are you accredited?” You: “No, we are not. But we do have considerable experience in this field. We are specialists.” Client: “I’m sure you are right but that is company policy.” You: “Can that be waived in this situation? After all, we have the capability of doing this job and have many satisfied clients.” Client: “Well, perhaps if the price was significantly lower than you have quoted, I may be able to get my boss to turn a blind eye.” Is the client telling the truth? Difficult, isn’t it. They may be playing it straight with you. Sometimes company policy is set in stone and the person you are negotiating with has no authority to bend the rules. On the other hand, they may have thrown you a red herring to push down your price. How can you use a red herring yourself? In the example above, you could say… You: “We would love to do the development work onsite, but at the moment we are working day and night to keep on top of the workload. How about in this instance we do the work at our premises? At least we will be able to then fit it in.” You have thrown them a red herring to persuade them to let you work at your office. Who wants to do all that travelling anyway! #24: Develop walk away power
Never go into a negotiation thinking that you must get to agreement at all costs. You could end up losing your shirt! You must walk away from a deal that could hurt you. In my earlier years as a computer consultant, I wanted to get that client! But experience taught me that in some cases I should walk away. For example, when the client tried to squeeze me too much on price, I would accept a low offer, figuring something is better than nothing. Yet this mindset didn’t bode well for repeat business with this client and my other negotiations. Become a soft touch at your peril. People can smell it like they can smell fear. Before you know it they will tear you apart like a pack of wolves. You will end up with a poor deal and resent every bit of work you do for that client. If the deal sucks, walk away. Only do business when it is mutually beneficial. There are always alternatives and other upcoming deals to make.
#25: Ask for the bulk price first
Say to your supplier, “How much for 20 of those network cards?” When they give you their price, you now know the price they can afford to sell them at. Then say, “I'll just take one for the moment, and can they do the same price?” Simple, but effective.
#26: Price conditioning your client
When talking to a client about a project, I often talk to them about work I have done with other clients and how much it cost them. Or I might mention what the competition charge. For example, Me: “We did a similar project for one of our clients recently. It cost them $6,000. You’re might be a bit simpler though.” Client: “Really? That’s quite a bit more than we expected.” (Client was hoping for something in the $2,000 region but now is disappointed and thinking they might not get what they want because it is way too expensive.) Me: “Well, yours won’t be that expensive as it is much simpler. At a guess, we are probably talking nearer $3,000.” Client: “Oh ok - that is more reasonable. It’s more in our ballpark.” (Client is relieved to think that the project is still possible.) What you are doing is softening them up on price. A project price of $3,000 is the same whether you come out with it up front or price condition them first. But the client perception is what is important. If it “seems” less, then it is as far as the negotiation is concerned. Car salesmen price condition all the time. They always sell the car first and then the add-ons. A $20,000 car makes the additional CD player at $600 seem less expensive. If he started selling the CD player before the car, $600 looks more expensive. Compared to a $20,000 car, it’s only a “little bit extra.”
#27: “If you”
As already stated, never make a concession unless you get something in return. But sometimes the client needs to realise you will adopt this stance. A good way to do this is to use the words “If you” on each concession. Some examples: • If you place an order immediately, I can meet your price.
• If you let us do the work at our premises, I can meet your deadline.
• If you pay in advance, I can give you a discount. The client will soon learn that if they want to change the deal, you expect something in return. |
