While you may be familiar with smaller sales, as your company begins to encounter bigger deals, you need to be prepared in order to ensure that negotiations end in your favor. A lack of experience leaves many small and new businesses at a major disadvantage, as they have no history of negotiating with large companies. Although being a new business has some advantages, those are outweighed by a lack of negotiating experience. But new businesses need to start somewhere, and starting off on the right foot can give you the experience you need to build upon your proven success.
The following are some important tips to keep in mind as you navigate the deal-making process.
1. If They Make the 1st Offer, Evaluate It Very Carefully
It’s true that the company making the first offer anchors the details in their favor. If a larger company makes the first offer, you should be prepared and knowledgeable enough to know whether it is fair. On top of this, you should meticulously review every word of the offer, paying special attention to price information and terms. Next, have your attorney review the offer, as he or she can identify terms that you may have overlooked. Be clear with the other company about how much time you will need to do this, as you don’t want to fall victim to an unnecessary deadline. It is very important to keep communication honest and open at all times during negotiations.
2. If You Make the 1st Offer, Determine the Opposing Company’s Ceiling
By conducting proper research, try to figure out how high of a price the opposing company is willing to pay. This should take into consideration the other company’s interests, alternatives and goals. Once this is done, propose an anchor price that is slightly above that offer price. The goal is to provide a high number so that you have room to negotiate, but not so high that the company will walk away.
3. Don’t Reduce the Price Too Early
The nature of all negotiations dictates that both parties come to the table with some flexibility in mind. But this does not mean making concessions before you have to. In a negotiation with multiple deal points, price may actually not be that important to the other party, especially if they are a larger company. Pay close attention to any signs that may indicate how important price actually is, and leverage that to your advantage.
4. Know Your Floor Price
There is a minimum price at which you can simply not go any lower and would thus need to walk away from the deal. This floor price is determined by your BATNA, which stands for “Best Alternative To a Negotiated Offer.” It determines at what point you are willing to walk away from the negotiation. Keep in mind that this should not be wishful thinking on your part, as you actually need to have an alternative and determine what that is worth. Otherwise, you might drop your price lower than you realize.
5. Be Sure That Your Price Offerings Make Sense
Your company’s higher-tiered option should provide more features than your entry-level one. The tiered offerings should correlate with the prices and deals set, and they should be consistent with the products and services your business is providing within those offers.
6. Identify All Deal Points in a Negotiation
Not all negotiations are about price. There may be elements of a deal that can counterbalance a reduction in the price. To give some examples, the opposing company may favor ease of use, timeliness, security or dependability over price. If this is the case, you need to stop worrying about price and focus on what the other company actually cares about.
From your own perspective, you should also think about deal points that the other company might not even be aware of. These may include mentioning your company on press releases, testimonials and corporate documents. These intangibles may not impact your financial situation now, but they can have positive effects down the line.
7. It Can Be Best to Pass the Torch to an Expert
Lawyers can be skilled negotiators. If matters become particularly sensitive or you find yourself well out of your skill range during the negotiations, it may be time to hand over the issue to your attorney. Be sure the lawyer knows from the beginning which matters are non-negotiable on your end and which are not. This will help to reduce your legal fees and avoid missteps.
Your first negotiations with large businesses will frame how future sales are made. Therefore, it is imperative that you go through the process with care and cover all of your bases. Any deal you accept should be favorable in some respect, as this will help you anchor your position for future negotiations. Follow these tips, and you’ll be on sure footing.