Tuesday, September 27, 2011

Planning For Successful Negotiations

Mention negotiating to some people, and the first image that comes to mind is a table full of lawyers and accountants haggling over a billion-dollar contract. In most small companies, you seldom get involved in those kinds of deals, but you do conduct negotiations of many kinds all day every day—sometimes without even realizing it. You negotiate with suppliers, customers, service providers, even employees. You give and take over everything from delivery dates and financing terms to whose turn it is to clean the coffee pot in the break room. Perhaps the most important negotiations, though, are the ones you conduct with vendors and suppliers. How well you perform there can make a major impact on your company’s success.

Obviously, being a good negotiator can improve your bottom line. Less obviously, though, when you improve your negotiation skills you also reduce some of the stress that comes along with running a business. You’ll enjoy both wider profit margins and fewer headaches if you’re prepared for the negotiating process and ready to use your skills when the need arises. Before you begin a negotiating session, you need two things: information and a game plan.

Information is something you can’t have too much of. You need to know as much about the other person’s needs and wants as you do about your own. If you are negotiating with a vendor, how’s their business? Is this sale important to them or just routine? Are they operating under competitive pressure in the marketplace or do they have a monopoly? Is their plant running at full capacity? Is their warehouse bulging with unsold inventory? Is the rep over quota or desperate for a sale? Some of these things you can find out by asking them directly or just listening closely to casual conversation; others will take a little research in the trade press or a reading between the lines in your dealing with competitive vendors. In either case, the more you know in advance, the better off you’ll be.

Look at your own situation ahead of time, too. Get the facts and figures straight about what you need, when you need it, how much you’re willing to pay for it, and so on. The more solid information you have, the more confident you will be in making decisions—and such confidence will greatly influence the way the vendor responds to your offers.

Remember, too, that this information is as confidential as your bank account numbers. You don’t need to reveal it to the vendor unless it’s going to help you get something you want.

Successful negotiation is by definition a matter of give and take, which is where the planning comes in. Preparing a list in advance of the possible concessions you can make as well as a list of things you’d like to have in return is often a good idea. The list will help you prioritize your requests and make sure you don’t overlook any possibilities. As you’re drawing up your list, remember that negotiation isn’t just about price. Delivery schedules, payment terms, packaging and displays, advertising allowances, return policies, and many other elements can add (or subtract) value to the transaction. And nearly every one of them is negotiable, so it never hurts to ask.

You can also offer the vendor some items he or she might want besides a higher price, too. The size of the order comes to mind right away, of course, but what’s it worth to them to get a quick decision from you? Or how about payment in advance? While you normally don’t want to tie up your capital, if the price of the parts or merchandise you’re buying can be slashed below the cost of the money (the interest you would earn if you kept the money in the bank for the time it takes to sell turn the inventory, to look at it simply), it might make sense.

One of the preparatory steps I always found useful was to think through my final position—my least acceptable alternative—before I started negotiating. This might include the highest price I could afford to pay, the largest quantity I could justify ordering, the longest delivery date I could accept, and so on. I would try to include every factor that might come up and decide—in advance—the worst terms I could accept before walking away from the deal.

What we’re talking about here is my “take it or leave it” offer. I would certainly never reveal it to the vendor, but knowing where I stood gave me a scale on which to measure possible concessions that I was either willing to make or that the vendor offered as the negotiation continued. Knowing the ultimate bottom line ahead of time also kept me from making costly mistakes in the heat of the moment.

The other thing to prepare in advance is a wish list of everything you could possibly want from the vendor. Don’t keep anything off the list just because you think “they’ll never go for that.” You don’t know unless you ask!

Dave Donelson distills the experiences of hundreds of entrepreneurs into practical advice for small business owners and managers in the Dynamic Manager's Guides, a series of how-to books about marketing and advertising, sales techniques, motivating personnel, financial management, and business strategy.

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