Business negotiation is an art that's integral to landing deals. When executed effectively, it can give you the leverage needed to ensure a favorable outcome.

While the specific scenarios can vary significantly, the process involves certain fundamental principles and following the right sequence of steps.

Preparation

Just like in Sun Tzu's "Art of War," strategic planning is the first step to winning the battle. Although business negotiation isn't quite as epic (and bloody) as ancient warfare, it relies upon some of the same tenets, and it is important have a 360-degree view of the situation.

Generally speaking, the person who is more prepared has the most leverage and is in the best position to strike a deal based on their terms.

Say you're a customer relationship management (CRM) software provider trying to close a big deal with a company executive to sell your product in mass. Before beginning the negotiation process, you might want to know:

  • What specific problem the company is facing. Maybe they're losing leads and not getting the conversion rate they're looking for.
  • Why they're experiencing this problem. Maybe they're not capitalizing on leads quickly enough, or there's a breakdown in team communication.
  • How your software can eliminate or at least alleviate the problem. Maybe your CRM software uses predictive analytics to improve customer interaction and streamline the sales process, which ultimately increases conversions.

Regardless of the details, you'll want to equip yourself with as much information as possible and understand the mindset of the person or people you're negotiating with.

Laying Down an Initial Offer

Research has shown that an aggressive initial offer tends to lead to a higher final settlement and should work to your advantage the vast majority of the time. According to the research, "An aggressive first offer also allows you to offer concessions and still reach an agreement that's much better than your alternatives."

However, many negotiators don't act aggressively out of the fear that they'll either annoy or offend the other party. You certainly don't want to go overboard to the point that you're asking for a ridiculously high amount of money that's borderline delusional, but you do want to give yourself some wiggle room and anticipate settling on a number that's lower than your initial offer.

Effective Tactics

One strategy that can work to your advantage is to offer a range rather than a fixed number. This gives both parties some flexibility and reduces the odds that you'll get hit with an extremely unfavorable counteroffer.

Say, for example, you're looking to sell your startup. Rather than putting down an offer of $500,000, you could set a range between $500,000 and $700,000.

It's also smart to have in mind the absolute lowest amount you're willing to settle for. Ideally, you won't have to go anywhere near this number. But deciding on this ahead of time will ensure that you don't get sucked into a bad deal or get taken advantage of.

When to Fight

Typically, the time to go for the jugular is when it's obvious that the other person has a genuine need or interest in your product, service, or company, and that what you're offering surpasses what your competitors can.

This type of leverage puts you in a position to be aggressive, and you'll want to strike while the iron is hot. Of course, you should try to destroy their objections, rather than attack them personally.

When to Compromise

There are two main reasons for a compromise:

  1. You're clearly lacking leverage, and failing to compromise is likely to kill the deal that you desperately want to make. As long as not you're going beneath the absolute lowest amount you decided on prior to negotiation, a compromise can make sense.
  2. You'll still get a favorable deal and can build a relationship with the other party that's likely to be mutually beneficial in the long run. In this case, giving up a little now can potentially lead to big returns later on.

When to Go for Broke

Going for broke is inherently risky. It's kind of like betting everything on either black or red in roulette. If taking this type of risk and losing is going to potentially ruin your finances or career, it's simply not advisable.

However, if you've got the confidence and know that you'll be fine even in a worst-case scenario, then maybe it's time to bet all your chips and roll the dice.

After all, fortune tends to favor the bold.

Conclusion

Understanding the fundamental principles of business negotiation is essential if you want to earn what you're worth and close big deals. Will you win every single negotiation without a hitch? Probably not.

But by putting forth adequate effort, studying the other party, and utilizing the right psychological approach, you can improve your odds considerably and can become highly proficient at business negotiation.

What techniques have you found to be effective for closing deals?

Published on: May 26, 2016