Some Thoughts On Negotiation
Negotiation: can be defined as a process of bargaining by which agreement is reached between 2 or more parties. We all negotiate every day in a wide range of work and social situations.
In sales we need to negotiate with our customers to arrive at mutually acceptable and profitable deals. Negotiation is important for 2 main reasons; the effect on our profits and the relationship with our customers.
Effect On Profits
Negotiating skills are important if you are to be successful in business and in life. The importance of negotiation to your business is vital and the impact of good or bad negotiating can be shown as follows:
Assume you work for a company with a turnover of £10 million and costs of £8 million. In a very simple model your company is making £2 million profit.
Assume that your sales people and buyers, by improving their negotiating techniques increase sales by 5% and reduce costs by 5%. How much does your profit increase by?
Most people would instinctively say 10%, If you do the maths what happens is that sales increase to £10.5 million, costs reduce to £7.6 million and the new figure for profit is £2.9 million.
This represents a massive 45% increase in profits and this is one reason why negotiation is important.
Effect On Customers
Negotiation is a process of bargaining by which agreement is reached between 2 or more parties. That means we must trade, rather than give away concessions. Work out the cost implications of concessions before you agree them.
Successful negotiations can lead to increased profits, but can also lead to greater customer satisfaction. For example, you are buying a car and you see a car advertised in the newspaper for £8,500. You decide to make an ambitious offer to see how they react. You offer £6,000 and they accept your offer immediately. How do you feel?
Most people feel two things in quick succession:
1. I could have done better
2. There must be something wrong with the car
Think of this next time you are negotiating for your business with a customer or supplier. Are you `being fair’ by offering your best price first time? What impact has your action had on the way the other side feels?
The objective of successful negotiation is not necessarily to charge the highest possible prices for your products, or to pay the minimum price possible for your supplies, but to creatively put together solutions to problems that ensure:
- The best possible outcome for your business.
- Customers and suppliers who are happy to do business with you.
- A reputation for being a tough negotiator while earning the respect of those with whom you negotiate.
Or as Napoleon put it, “The objective of negotiation should not be a dead opponent”!