At this time of year, many of our customers are focused on closing business to hit end of year targets. Of course your own customers are very aware of this and from our experience its the time of year when margins are squeezed most - it's almost as if your clients heard those words from your boss as you left the office "don't come back without the business...."
It's difficult in these situations to feel you are in a strong position and during our negotiation workshops "I'd like to be a strong, confident, negotiator' is the top objective for many of our participants. So, when times are tough, how can you negotiate from a position of strength and bring back decent margins as well as closed deals?
In this first in as series of negotiation articles, we are going to look at three key elements that may help you:
Rule 1 - Understand and strengthen your walk away options
Many of our customers find it difficult to think about what happens if they walk away from a negotiation - it's the last thing they want of course - but having clarity on this is key.
The term often used to describe this is BATNA or 'Best Alternative to a Negotiated Agreement'. This was originally used by Roger Fisher and William Ury in their 'Getting To YES' book and has become an industry bet-practice model used throughout the sales and buying world.
Knowing your BATNA means that you know what you will do or what will happen if you fail to reach agreement in a negotiation. For example, if you are negotiating a raise with your boss what will you do if your negotiations do not end in agreement?
It is vital that you always know your BATNA before entering into a negotiation. Without one you will not know whether a deal makes sense or when to walk away. Going into a negotiation without one means that you start with a 5 point disadvantage and may find that you become overly optimistic, rejecting an offer that is actually better than the alternative. Your BATNA also gives you the ability to walk away with confidence from an unfavourable offer.
If your BATNA is strong you can negotiate with more confidence knowing that you have something substantial to fall back upon if a deal cannot be agreed. However, a weak BATNA puts you in weak bargaining position. So anything you can do to strengthen your BATNA will improve your position.
Let's look at the case of Jo, an employee negotiating with her boss for a pay increase. Jo starts off by considering her BATNA; 'if an increase in pay cannot be agreed I will resign and look for a job with another company'. The strength of this BATNA depends on circumstances, how easy will it be for her boss to replace her, recruitment costs and how easy will it be for Jo to find another position at the salary level to which she aspires.
If Jo wants to strengthen her BATNA she needs to do some more work. For instance, it would be substantially strengthened if she had a job offer from another company.
Of course her boss will have also identified their own BATNA therefore it is important for Jo to identify their BATNA and if it is strong see if there are ways that you can weaken it.
In the case of Jo, she might discover that her boss plans to use temporary staff to fill her job should she leave. Jo might try to weaken this position by checking the costs of temporary staff versus the additional cost of her increase, the time needed to bring a temporary person up to an acceptable level of performance and the possible impact on customers and therefore business during this period of learning.
In our sales workshops, we ask participants to identify their BATNAs and how they can strengthen them. This often comes out something like
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Typical Sales BATNAS |
Strengthen them before the negotiation by... |
Strengthen them during the negotiation by... |
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Use sales efforts on more valuable prospects instead |
Building a strong pipeline, so you have some additional prospects |
Making it clear how busy / successful you are "this solution has really hit the mark with our customer base" |
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Use resource you would have dedicated to this prospect to build solutions or develop new prospects |
Understand what these new solutions are and put a value on them |
Make these options known - you don't have resource just sitting around! |
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Typical Buyers BATNAs |
Weaken them by |
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Do nothing |
Refer back to the business case for the sale and the benefits they have (hopefully!) already acknowledged |
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Do it internally |
Make sure they understand the benefits of using you rather than a home-spun solution (and the risks of an internal solution). Again it helps if earlier in the sale they have already stated this. |
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Do it with a competitor |
As above! |
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Rule 2 - Understand your reservation price
The reservation price, sometimes called the 'walk-away' price identifies the least favourable deal at which you would make an agreement. Your reservation price should be derived from your BATNA, but it is not always the same thing.
For instance, when buying a house your reservation price will depend on a variety of factors; market value of the property, the level of mortgage you can afford, whether there is a chain involved, and how much work/investment would be needed to bring the property up to an acceptable level for you to make a home.
Having seen a property that you like and taking all of the above factors into consideration you might decide to set a reservation price for the property at £250K. Any offer above that level would be unacceptable.
Rule 3 - Estimate the Bargaining Arena
The Bargaining Arena is the area or range in which a deal can be made which satisfies both parties. Each party's reservation price determines one end of the Bargaining Arena. In the example above the buyer has a reservation price on the property of £250K. Unknown to you the seller has a reservation price of £230K, that is the least he will accept for the property. The Bargaining Arena therefore is the range between £230K and £250K. There may still be some tough bargaining but any deal within this range will satisfy both parties.
Good negotiators will understand before going into to a negotiation the likely boundaries and BATNAs. During a negotiation, they will make it clear that they DO have a good BATNA (even if inside they don't feel that way!) Obviously you never want to have to get there - but without being clear about this going into a negotiation, how do you know when to walk away???
