This is Part 1 of a Series on Business Relationships.
Negotiating is a mix of art and science you learn over the years. I'm a believer that you need to find out what works for you. Just as different people have different personalities, you will find that there are different negotiation techniques that will work best for you. But here are a few basic principles I have seen stand the test of time:
1. Be Nice - As much as negotiation seems like a "macho" thing, and you have to go in there and "knock the other person around"... it's quite the opposite. People want to do deals with people they enjoy being around. They understand that you will be long standing business partners and they want to know that you will be there through the entire partnership. Remember, closing a deal is just the start. After that you have to deliver the service or product you've been selling, or work with the people delivering that product or service.
2. Understand the client's objectives and decision-making criteria - In other words, figure out what is important to your potential client. When you understand this, it's like finding the cipher. All the comments your client makes start to make sense, you're able to position your product in such a way that it meets your clients' needs. And more importantly, your client is able to pitch the deal to his/her boss for budget approval.
3. Demonstrate Value / Make your client the star - Show to the other person why your product or service is valuable. Show them why this is a "must have" product or service, and that if they signup they will be viewed as a rockstar inside their company. Show them how you will make them successful. Over the years, hopefully you can get to the point where your potential client will get fired for not purchasing your product or service. But at the end of the day you need to be able to sell them on your product no matter how much or how little data/metrics/proof you have.
4. Bring up price last - Many people jump into the pricing discussion from the beginning. And it's true you don't want to talk about price at the very end... just make sure they get through steps 1-3 first. That way they can "stomach" the price tag and start to justify it internally before you even need to explain it. If they understand all the value it will bring them, how it aligns with their objectives and that you will be an awesome partner to work with for the long term, you will have to "sell" them on it less. They will want the product/service and they will start to rationalize the price.
5. Barter back and forth - Understand, people are going to try and negotiate the price, and that's fine. Make sure you price your product so that you have at least a little room. But each time you give on the price, make sure you justify it. Here are some good reasons to justify it:
- Reduce the annual price if they signup for 2 years
- Reduce the level of customization you will allow for (and maybe they don't need all the customization you were originally offering)
- Reduce your service level (but make sure you don't decrease it so much that the client won't be happy - in cases like this, a client would rather see you stand firm on your pricing if you tell them they will see a quality reduction by not having this certain service level)
- Reduce the price by giving them one month for free. That way they are still paying your regular monthly fee, but you throw in a free months on the front (or back) end. Then when a renewal comes up, you are still billing the regular monthly fee, and this time you get all 12 months)
The reason it's so important to justify each reduction in price, is that if you don't, the client will think you have unlimited room to keep reducing and that you just put an arbitrarily high price tag out there. Make sure they can clearly understand that with each reduction, both sides are getting something. This will help you get to a conclusion on the pricing discussion faster.
Hope this helps, and feel free to ask questions. For more, check out my blog at http://blog.johnfoxjr.com