Sales negotiation is a critical part of the sales process. It moves the deal to a close, and it's where both parties come to agree on the terms of the initiative, including the price. However, many sellers and organizations struggle with negotiating successfully.
Seventy-seven percent of sellers report that negotiating with buyers virtually is challenging, and only 27% of buyers say that sellers are very effective at negotiating with them (from our Virtual Selling Skills & Challenges report). That means that less than one in three sellers does well in their virtual negotiations.
As the global economy teeters on the edge of uncertainty, companies are already canceling engagements, dropping vendors, and tightening their purse strings.
They’re looking for any way to make their dollar stretch, and there’s no better time to do that than in contract negotiations.
For industries still in buying mode, negotiations pose a unique opportunity to take advantage of desperate sellers struggling to meet their numbers.
As businesses shut down and stock markets plummet during this global crisis, buyers are more money conscious than ever. In most industries, sales are stalling. Buyers are cutting spend and pushing vendors for deep discounts.
This is an unprecedented time.
It's essential that sellers are the best they can be, and that includes in sales negotiation. In fact, every dollar preserved in a negotiation goes straight to your bottom line. How much of a difference can it make?
Seller: “Based on your requirements X, Y, and Z, with setup and 90 days of consultation time, the price for the project will be $475,000.”
Buyer: “Is this the best you can do? It’s more than I was expecting. While I’d prefer to go with you, [competitor] said they can do it for less.”
Seller: “We are pretty confident in our pricing, but let me see what I can do and get back to you.”
This is oversimplified, but it’s an all too common scenario in B2B selling.
When you’re buying something big, you likely ask for discounts. If you do, it makes sense that others do, too. If you don’t ask for discounts, guess what? You’re in the minority.
What are the best strategies for success in sales negotiations? What do buyers really want? Which tactics work best for buyers? For sellers? How is negotiating with procurement different?
The RAIN Group Center for Sales Research recently studied 713 buyers and sellers in a major global study to answer these questions and more. We analyzed data from 449 buyers representing $2.59 billion in annual purchases and 264 sellers in over 26 industries across the Americas, EMEA, and APAC.
Whether you work on a sale for 9 days, 9 weeks, or 9 months, you can lose it in an instant during the negotiation.
Even if you win, you may watch your margin slip away, the buyer piecemeal the product or solution set, or find yourself fighting against any number of hardball tactics.
Plus, many sellers make serious negotiation mistakes that drive down profits and damage customer relationships.
Win-win negotiation is the way to go…except in one situation: when the buyer has their hand in your pocket. Whether they're doing it intentionally or just out of habit, sometimes buyers try to push down seller prices just to see if they can.
When they do, you should counter with value, but you also have to signal as you respond, "That won't work. I know what I'm doing." (Without, by the way, saying it like that.) You need to respond in a way that gets this message across and gets the discussion back on track.
Picture this: You're meeting with your prospect after months of discussions. You have a great relationship. You did facilitated sessions, interviews, and organized a global team for the roll out. If you win, this will be your biggest close of the quarter.
All signs look a-go, but you still have one remaining meeting to work out, according to your prospect, "the key terms and conditions."
You walk into the room and hear…
Preparation is often the greatest determinant of negotiation success.
Across negotiation studies and surveys, sellers who get the best outcomes:
Who should go first in a negotiation when it comes to offering a price, solution, and agreement to key terms?
Do you ask for a budget and then craft what you do from there?
Or do you, once you know what the needs and major parameters might be, suggest a solution and a price before talking about budget?
It’s a common question, one that continues to baffle many sellers. They fear that if they go first, they will leave money on the table, or risk going too high and having the buyer say, “That’s nowhere near what we were thinking,” or anything in between.
Buyer and seller negotiations are a fun dance. While these negotiations are usually partner-focused (win-win), buyers often use standoffish tactics to gain an advantage in the negotiation at the seller's expense. Even if you—as the seller—have a win-win mindset and approach, you need to know how to maneuver the situation when buyers throw you curveballs. You need the right negotiation skills to bolster your success.
This article was originally published in the Inside Sales Blog.
One of the biggest mistakes sellers make in a sales negotiation is letting buyers take control of the negotiation, leaving you to play defense. If you want to come to a great agreement (and you do), you need to lead the process.
In our white paper, 6 Essential Rules of Sales Negotiation, Rule #3 is: Lead the Negotiation. A key part in leading a sales negotiation is teeing up the meeting properly with an agreed to agenda ahead of time.
When you write the agenda, you can more effectively lead the conversation.
Nearly all meetings in any given negotiation are unique, so you'll need to plan for each one specifically. Start by creating an agenda to determine what information will and won't be discussed.
If you bypass this step, the meeting could start off on the wrong foot with the buyer making demands or pressuring you on price.
Reverse auctions (also called e-auctions) are a common negotiation technique used more and more frequently by large organizations. For the most part, sellers don't dislike reverse auctions—they loathe them.
The point of a reverse auction is to drive down supplier prices to their absolute lowest while driving expectations of suppliers to their highest. As the process (typically) removes human interaction from the equation, sellers often feel at a complete loss to do anything but participate in the auction or walk away.
There's a lot more to it. Below you'll find negotiation strategies you can use before and during the reverse auction process to get the best results for you and your buyer.
"Unfortunately, there seems to be far more opportunity out there than ability...
We should remember that good fortune often happens when opportunity meets with preparation."
Thomas A. Edison
Preparation is often the greatest determinant of negotiation success. Across negotiation studies and surveys, we see sellers who get the best outcomes: know what they sell, research buyer wants and needs through sources other than the buyer, have a keen understanding of the buyer's day-to-day life and concerns, and prepare for each negotiation with trades, counteroffers, and knowledge of their walk-away points.
My grandfather Sidney was raised during the great depression. Often hungry growing up, he learned the value of a dollar the hard way. It stuck with him the rest of his life. When I was in college, he never let me call him because he would say it was long-distance.
I told him that the distance was long, but the call didn't cost anything. Still, he could barely stay on the phone for 5 minutes. I could visualize the nickels clinking in his mind, making him uncomfortable with the cost of the call.
It's common advice to minimize emotions in a negotiation. For example, the reading line of the article "Emotion: The 'Enemy' of Negotiation" is "To succeed in negotiation, says one Wharton expert, one must take emotion out of the equation."
We disagree. Emotions are primary drivers of decision making in buying, and primary drivers in negotiation outcomes. Emotions shouldn't be minimized. Instead, they should be guided and managed for both buyer and seller so that the best outcome can be achieved by all.
"Leadership is the capacity to translate vision into reality."
Warren Bennis, Author, On Becoming a Leader
When it comes to sales negotiations, all too often sellers:
In our research report, The Value Driving Difference, we studied almost 500 organizations' practices regarding how focused they are on driving value for buyers. Companies that rose to the top as Value-Driving Sales Organizations had higher sales win rates, were more likely to grow revenue, had lower undesired sales staff turnover, and much more highly motivated sellers. They were also two times more likely to agree that they capture maximum prices in line with their value.
There's no question: If you want to succeed in sales, you should focus on driving value.
Alison Brooks and Maurice Schweitzer, two researchers at the Wharton School at the University of Pennsylvania, conducted an experiment to induce varying levels of anxiety among negotiators.
One group was subjected to the not-so-melodious screeching strings from Psycho. The other group was treated to calming Water Music by Handel. After listening for a while, the groups were sent off to conduct simulated negotiations.
When watching sellers negotiate, perhaps the easiest things to see are the mistakes. Having now spent two decades studying sales negotiation, observing negotiations, and coaching and training sellers to improve their negotiation skills, we've distilled the common areas that the best sales negotiators consistently get right.
Good negotiators have the ability to recognize the negotiation tactics and style of the other party.
When a buyer comes to the negotiation in partner mode, it allows you to work collaboratively to create possibilities that expand the pie and result in the best possible agreement for both sides.
You've been working on a sale for 4 months and everything's going great. Your potential customer, the decision maker, is talking as if the deal is done. But before final sign off, you must meet with the CFO.
You get to the meeting.