“Negotiate Before the Battle”
Sun-Tzu noted in the “Art of War,” a centuries old treatise on waging successful campaigns, that the battle is won or lost before the first arrow is launched. In selling, this means you must have a vision of your negotiation outcome before it happens. If not, you’ll become victimized by frequent price concessions, which are always bad.
Four bad things happen when you lower your price to get the sale.
1. You lose profits, credibility and establish a new expectation.
2. Your client wonders why you didn’t offer the best price in the first place.
3. Your client assumes that all future pricing is merely a starting point.
4. Most importantly, that 1 percent is not a “point” but is usually 20-50 percent of the profit.
That last point is particularly galling. The most successful companies in our industry are operating at EBITAs of 5 percent plus or minus. Most hover closer to 3 percent. A 1 percent discount takes a significant gouge out of the profits. A fifth outcome of a price reduction is that you just plain feel bad. Instead of caving, have a game plan.
Good negotiators always “get” something if they are going to “give” something. If you plan to offer a price concession, then get something back from a client that is valuable to you, but low cost to them. The concession can be a consolidated shipment, a promise for additional project work, bundling of other products, or even a referral.
The fact is that you owe it to clients to get something back when you provide a price concession. If you don’t, the client will wonder why you didn’t just give them the “fair” price (based on their perception) up front.
Before the negotiation begins, prepare yourself with a fallback position. It will protect your margins, provide better relationships, and make you feel better. Of course you could just get your asking price in the first place. That would be the best thing.
You may contact Rick at firstname.lastname@example.org or visit his website.