Marketing: Five tips for better price negotiation
Price is one of the most often overlooked elements that a business has to deal with. Too often, price goes to what the market is – or worse yet, what the competitor down the street is offering. You don’t have to do this! If your products are averaging a 20 percent margin and you are making a 5 percent return at the end of the day, a small 2.5 percent price increase that didn’t cost you any lost sales would mean a 50 percent increase in your profits! There are many ways to get a price increase. Not all of them have to do with the list price. Sometimes enforcing terms or discounts can have the same effect. One common way to increase price, however, is to negotiate a higher one. Here are five tips to help you do that:
1. Put time on your side
It is important to know how valuable your product or service is to your customer. Knowing how it fits into their work plans, production schedules or seasonality can also be helpful. Being able to agree on a deal just in time can help give you maximum negotiating advantage. There is a reason why so many labor contracts or salary negotiations are decided at the last minute. When they have to get done, they get done.
Using time goes both ways. You can use it to force a deal with the other party or to drag out a deal to secure a better offer. Either way, you should know before you begin to negotiate how you intend to leverage time. Negotiation timing needs to be just right.
Don’t try to leverage timing too early in the negotiation; starting too early could backfire. Bringing up the issue of time at a critical juncture of the negotiation will allow you to gain maximum value.
2. Be prepared to walk away
This one is tough to do. To be prepared, you really need to know the value of the product or service you are providing to your customer. I know many professional purchasing agents who will always ask for price concessions. They do this because it helps reduce cost and it almost never hurts them to ask. I know of one buyer who told me after a price negotiation that resulted in a cost reduction of 3 percent that he would have gladly paid 20 percent more for a critical item because no one else could deliver it with the same mix of quality and service. He “won” the negotiation because his sales representative didn’t know or understand the true value of the product they were delivering.
If you aren’t prepared to walk away from the deal, then you’re stuck having to accept the terms of the other party. Be clear up front with the other party that you are prepared to walk away and that making a deal is not necessary for you to feel good.
3. Be flexible, but never show your best offer
Too often in negotiations, salespeople will drop to their lowest allowed price because they are afraid that if they don’t, they will lose the deal. That is a huge mistake. In dropping price too quickly, you don’t give the buyer an opportunity to pay what they might be comfortable with. It is easy to give up 5 percent when 2 percent or nothing might have gotten the job done.
To negotiate effectively, a sales person needs to understand their buyer’s needs. Maybe offering one day shorter lead time is worth more to the buyer than a 2 percent price increase. Flexibility and customer knowledge go a long way in negotiations.
Your “dead net – not to go below” instructions, therefore, should be for the sales person and only the sales person to know. Regardless of how heated the negotiations get, never put your best offer on the table. Putting your best offer on the table will be seen as being desperate, and the other party will seize on it and go for even more.
4. Never put anything in writing until you are ready to sign
A deal is not done until it is done. Some argue a deal is not done until the check clears. Everything can be negotiated and remains negotiable right up to the point of signing a contract.
Putting things in writing may appear to be the proper way to proceed, but you can wind up boxing yourself in with too few options near the close of the negotiation. Experienced buyers often use this to their advantage by saying, “Wait, there is just one more thing we need to get this deal done.” So, if you are buying or selling, be aware and keep some flexibility in your negotiations.
5. Understand the other party’s pain points
Getting a buyer to fall in love with your product can take a lot of effort and time. If, however, there is something about what they are doing or using now that causes them to feel like their arm is on fire and you can provide the fire extinguisher, then you are in a much better negotiating position. Discussions should always be about the other person’s need or pain, never about yours. By keeping your negotiation conversation focused on what they need, the greater the concessions you’ll be able to negotiate and secure from them.
Putting these tips to work in your negotiations should help you make more money with less effort using the resources you have. Good luck and good negotiating!
About the author: Scott Francis is president of Topline Development LLC, a strategic marketing consulting group that provides new product development and start-up strategies, advertising and marketing consulting, and sales support programs. To learn more about Topline Development LLC, visit their website at ToplineDevelopment.com or contact Scott directly at Scott@ToplineDevelopment.com.