Before reaching the jobsite most contractors have faced at least three to five negotiation experiences and never realize that there was an opportunity to negotiate. The first opportunity for negotiation usually occurs at home before you are out the door when your spouse asks you to pick up your son at soccer practice and bring home a jumbo pizza for supper.
Next, on the way to the jobsite you drop your daughter at swim practice when your pride and joy hits you up for a $15 advance on her allowance.. The next negotiation comes with the ring of the cell phone as your office manager requests one-half day off on Friday to beat rush hour traffic as she heads on vacation.
And you thought you only negotiated with customers, competitors, equipment dealers, bankers and leasing companies. Each negotiation opportunity can be better and more successful if you know five negotiation basics.
- Be Prepared - sounds like Boy Scouts, doesn't it?
- Set Limits and Goals
- Get a Tune Up: Communication and Listening skills
- Handle the Probe with Care
- Propose and Close the Deal
For our example let's use a purchasing negotiation for a new company ¾-ton pick-up truck.
Step 1: Prepare
Needs and Wants
The preparation phase includes defining and clarifying what you want and need. Needs and wants are not the same. If your company needs a crew cab because you prefer dropping workers on the jobsite, the crew cab is a need.
A six CD player with deluxe speakers is probably a want, not a need. Be willing to give up the CD player for a better price on the truck. Prioritize wants and needs. Work on getting the needs first and then try for some of those nice features on the want list.
Sir Francis Bacon is quoted as saying "Knowledge is power." This holds true in negotiations. Knowledge of wants and needs, and those of the other party is key in every successful negotiation.
With the truck purchase, learn everything you can about any manufacturer incentives or special discounts from the local dealer. Who will you deal with at the dealership? Ask friends how tough or easy it is to bargain with that sales person. Read truck industry publications, consumer buyer's guides and use online research websites. Know if there is excess inventory on the dealer's lot.
Once the desired make and model are selected, find out how many dealership locations are within a 50- to 75-mile radius of your company. It may pay to drive a little farther to save money. Sometimes the more remote dealers are more willing to be competitive because they have less walk-in traffic.
Sales Cycle and Commissions
Most sales organizations compensate their sales people on monthly or quarterly sales production. The sales quota and rewards system is similar in heavy construction equipment, computers, software, trucks and cars.
These companies often make better deals at the end of the month or quarter, so time your purchase to coincide with sales incentive programs. Bigger discounts may be available.
Before going to the dealership, visit the bank and credit union to see what financing is available for a purchase like the one you are contemplating. Find out the interest rates, down payment requirements and length of financing available.
If you think you might lease the vehicle, the dealer will offer you the manufacturer's leasing options. Call other independent vehicle leasing companies to see what lease options they offer. It is not a requirement that you lease the vehicle from the dealership.
Step 2: Set Limits and Goals
Know your bottom line and write it down. What is the highest price you will pay? Always have a Plan B just in case Plan A does not work out. It is better to be ready with several alternatives that are acceptable to you and your business. Plan B may be to buy used and Plan C may be change the make and model. If you are not prepared with a back-up plan you are going to leave money on the table.
Do not make a bad deal to save face just because you said today is the day to buy a new truck, backhoe, computer or whatever you are purchasing.
Kenny Rogers gave sage advice when he sang "You got to know when to hold them, know when to fold them and know when to walk away." There are times to walk away.
Walk away without making a deal when you or the other person is drunk, crazy, overly emotional, irrational, feeling ill or when if you have more to lose than gain.
Step 3: Tune-up Communication and Listening Skills
Isn't talking the best way to win in a Negotiation? No! Listening is the key. How else can you find out what the other side wants without listening.
6 Tips to be a Great Listener
- Paraphrase and restate. Use the phrase "What I hear you saying is" or "If I understand your position, you would like to have more cash as a down payment." Using the paraphrase technique allows the other party to confirm you are listening. Restating also helps clear up misunderstandings either party may have.
- Never say Never: If "NO" is the first word out of your mouth when the sales person makes you an offer, you closed opportunities for getting more information. And the one with the most information about the other team usually wins the most. Instead of saying NO, try saying "your offer may not be our best option, so what we can agree on is this..."
- Don't always think about your next brilliant words. Stay in the moment. You probably weren't listening to the clues they gave you that help get what you need. You were so busy preparing your next request that you did not listen to a word the other team said.
- Never interrupt the speaker - it is disrespectful and stops good communication.
- Take notes: It shows you are listening and that you value what is said. Note taking also keeps your mind on the progress of the negotiation. The other negotiator feels respected too. Don't we all want that at the end of the negotiation? It is important to know that the other party really listened to our needs. When taking notes, we are telling the other side their needs are important and we do not want to forget them.
- Remove distractions: Turn off or silence cell phones before the meeting begins. If the negotiation occurs over a telephone, turn away from the computer screen. If you have a noisy office, close the door. Mute the intercom and ringing telephone lines. If you work in an office full of cubicles and dread distractions from co-workers, transfer the negotiation telephone call to a conference room and finish it there.
Step 4: Probe with Care
- Ask open ended questions. Open ended questions facilitate communication and improve negotiation results. An open ended question is one that cannot be answered with "Yes" or "No." Open ended questions begin with the 5 W's: Who, What, When, Where and Why.
- Do not assume anything. Clarify the speaker's message by paraphrasing your understanding of what you thought you heard. Clear up confusion immediately. Misunderstandings can be a problem later when you thought your truck delivers in one week. On the way out the dealership door you learn delivery is one month away.
- Facts or Opinions? Ask fact based questions - What is the truck's gas mileage in the city? The answer will lead to a factual response such as "the truck will get 17 miles to the gallon." An opinion question might be phrased as "What do you think of the truck's design?" The response will be an opinion. Opinions cannot be taken to the bank so be clear when you want opinions and when you need "Just the facts, Ma'am."
- Don't pretend to be a psychic. Confirm your suspicions, beliefs and concerns with facts. Asking open ended questions yield detailed information. Never think you know what the other party is thinking.
Step 5: Propose and Close
- Do not make the first offer. The one to speak first and quote a price usually loses the most. Let the other person make the opening offer.
- If they read the same negotiation books you did, they want you to make the first offer. If they try that, remind them of their years of experience so they should make the first offer.
- Floors and ceilings - If they want to sell you a truck, they set the top price when they present the first offer. Now you know what the ceiling is. Your offer will set the floor or the lowest acceptable price for you.
- Now you are making progress because the bottom and top numbers are out in the open.
Negotiations is a continual learning process. Never quit learning how to be a better negotiator. The more you help the other party get what they want, the more you will get more of what you want.
Mary A. Redmond, a 26 year veteran of the equipment leasing industry, founded Independent Lease Review, Inc. in 2002. Her company identifies and eliminates lease gotchas for large and small companies, manufacturers and distributors saving customers more than $4.5 million. She speaks and writes nationally on leasing and contract negotiation. Her book The LeaseSpeak Dictionary: Understand the Terms that Save YOU Money will be released in Spring 2008. Contact Mary here.