The ability to negotiate successfully can bring you and your business tremendous advantages.
Imagine you could increase the values of your company’s contracts an additional 15% by negotiating higher rates.
So if negotiation skills bring significant rewards, how come most people, particularly in the United States, are so bad at it?
Part of the problem is cultural. In other countries, negotiation is a regular part of life.
Children in Asian countries learn to negotiate by going to the local market and haggling over prices. However, in the U.S. we rarely have the opportunity to practice.
There are only a few occasions where we typically have the ability to negotiate, and they are usually high-stakes such as buying a house or taking a new job. Ironically, these situations are where negotiation skills are most valuable, since making the offer better for you by even a few percentage points translates into potentially tens of thousands of dollars. Unfortunately, the pressure of the situation actually causes us to negotiate less.
Since we don’t have the chance practice on small-scale negotiations, we’re not prepared to handle a negotiation when the stakes are higher.
Don’t miss another opportunity to negotiate better terms for yourself or your company. Use these six proven approaches and you’ll be negotiating like a pro in no time.
1) Start With Your Maximum Plausible Position
When beginning a negotiation, you always want to start off with what is called the “Maximum Plausible Position.” This means asking for the absolute best terms you can reasonably expect to get.
If you’re selling your services, ask for the highest possible rates for your business that you can justify. If you’re buying, ask for the lowest price that you can justify.
The key part of that phrase is that you can justify. This means knowing your objectives and value, so that if someone questions your number you can back it up with facts.
Even if this is the only negotiation tip you ever use, it will set you up for success. Starting as high as you can gives you room to come down while still profiting.
2) Use the Bracketing Technique
If you can get the other side to reveal their position first -- meaning they tell you which price they are offering -- you can use a technique called bracketing to determine where you want to make your first counter offer.
Bracketing means you make an offer that is equally far apart from the final price you want to pay as the other side’s initial offer is.
For example, if you want to sell raw material for $175 a pound, and the other side is offering to buy them for $125, then you would want to start at $225. Since they are $50 lower than you want, you come in $50 higher. This means you both have equal room to maneuver and still come in at the price you want by meeting in the middle.
That brings us to the next point …
3) Never Offer to Split the Difference Yourself
Even though you know there’s a good chance that you’re going to wind up meeting in the middle, you never want to be the one to offer to split the difference. Continuing with the above example, look at what happens if you offer to split the difference against a smart negotiating opponent.
You: Why don’t we just split the difference and agree to $150 per pound?
Them: Let me see if I understand what you’re saying. You’re saying your company would be willing to sell for $150 per pound instead of $175, and if we’d be willing to do that as well?
You: Yes, exactly.
Them: Well, first let me say I appreciate that you’d be willing to go down to $150 per pound; however, we just can’t afford to go that high. We could go up to $135 per pound. You already said it’s no problem for you to come down $25, so another $10 really isn’t that much more. How does that sound to you?
You (in your head): I’m trapped.
See the problem with being the one to offer to split the difference?
Against a smart opponent, it has the same effect as changing your offer without the other side changing theirs. Once you’ve changed your position, they will negotiate with you based on where your offer to split the difference was, and you’ll wind up with a less desirable price.
4) Taper Your Concessions
So how do you handle changing your offer?
You want to “taper” your concessions.
That means each time you agree to raise or lower your price (depending on whether you’re the buyer or seller) you want it to be a smaller change than the last time. If you offer to come down on your price by $1,000 first, then $500, then $150, it will give the appearance that you’re getting closer to your absolute lowest price.
If you come down by $500, then $1,000, then $150, your opponent will think they might be able to get a lot more out of you. Since you started with a small concession, then made a big one, then made a small one, if the pattern continues they will think they can get another big concession out of you next.
5) Don't Accept the First Offer
Whatever you do, do not accept the first offer. Even if it’s an amazing deal, you want to ask for at least a tiny concession. There’s a simple reason. You want to make your opponent feel good about themselves -- like they got the best offer possible, so they count it as a win.
If you accept the initial offer, the other side will think, “I could have gotten more out of them if I didn’t start off with such a good deal.” If instead you negotiate for a concession -- even a small one -- the other side will feel like they got the best offer they could from you and leave the negotiating table happy about the deal.
This is critical, because chances are if this is a long-term business relationship you will be dealing with this person again in a future negotiation. The last thing you want is for them to come to the table next time wanting revenge for the last deal.
6) Avoid Ask Yes or No Questions
Asking a yes or no question usually won’t get you anywhere. Asking, “Can you get me a better price?” makes it easy for the other person to reply, “No.”
On the other hand, if you ask an open-ended question like, “What can you do to get me a better price?”, the other side must give a complete answer. They can’t say simply say, “No” -- they have to come up with some justification or explanation. If they don’t have a good one, you can challenge them and often get a better deal.