“Two simple words, your Honor. I forgot,” was Steve Martin’s comedic response playing a dumb lawyer in court.
Not an apt remark after negotiating a critical sale. While everyone today has had enough negotiation training to feel like an expert, more than a few big sales with large revenue numbers, but very slim profit margins, get signed. What “I forgot” has to do with is ratcheting up your negotiation sophistication.
There are two higher level negotiation issues that are often underdeveloped in closing big sales:
- Gathering valid, multi-departmental information on the types of value adds (not inherent product/service benefits, but extra, complementary services the customer may want). These “extras” are often added to the final deal and eat up your profit margins, and;
- Preparing at least two pricing outcomes based on costing out the dollar values of potential concessions, trade-offs and value adds.
Get the Value Adds Information Right!
Value adds are not part of the services you offer, or the benefits of the product or service you are selling. They are complementary services wrapped around your product core. If the product you are selling affects multiple operating departments of a company, you need to confer with every financial decision maker in those departments to inquire in numerous ways, “What else do you need to choose us?” You will have to ferret out all the right people and ask that question in your own words numerous times to uncover which value adds would differentiate you from your competitors. Don’t forget that sometimes value adds can be both professional and personal.
Here are some examples of value add requests made by buyers:
- To an industrial manufacturer: “I have a diverse work force. Can you deliver training in a number of languages? And my HR manager wants to know if you can make some adaptions to the equipment for some of our newly hired disabled workers?”
- To a law firm: “In addition to our management and supervisory staff, I have over 300 consultants worldwide that also need this sexual harassment training. Can you handle that?”
- To a financial services company: “We need more than a twice a year account review and I think it’s important for your CEO to attend at least one of them.”
- To an industrial manufacturer of a component part from a major distributor/buyer: “When a large customer of ours has serious technical problems, I’d like my field engineering manager to triage those calls to your engineers directly so that the problem is resolved faster. Can we do that?”
- To the VP of Sales of a customer service training company: “In addition to the customer service training courses, I want to have you also run an accent reduction program for my workers off shore so that they complete calls faster.”
- To the sales director of a distribution company: “I noticed that you are a graduate of Fordham and my youngest is applying there. Would you meet with him and write a letter of recommendation?”
In each of these examples, the value add requests have costs affecting the final price. And, in each situation, the sales person did not uncover these requests in the first pass of interviews or from the usual suspects. The two key takeaways:
- The success of a large sale requires getting to know more people very well, on personal and professional issues, better than your competitors, and;
- Doing detailed research on the prospect so that you know the business strategy of the company and how it will affect your sale. For example, if you knew that diversity was an important part of a company’s social responsibility objectives to improve stakeholder perceptions, you would have known early on that multi-lingual training and physical adaptions for disabled workers was a necessity.
Costing Out Value Adds, Concessions and Trade Offs: Two Scenarios
The in depth interviews with all negotiation stakeholders to expand the list of value adds, potential tradeoffs and concessions has to be cost and priced out so that you firmly understand the dollar effect of each. This step requires that you spend time with your accounting department or CFO, plus value separately the cost of value adds plus margin dollars in house, or with other supplier firms if you cannot directly supply certain services. Remind yourself that many buying decisions are made on the basis of value added prices because the perceived worth is better. These differentiate your company. However, tradeoffs and concessions also have a cost, and each is negotiable, meaning, those costs can be assumed by either the buyer or the seller.
Having done this valuation of negotiable issues, you can then construct two financial scenarios, or outcomes, “Best” and “Good”. In each case, below, negotiable tradeoffs and concessions still have to be settled, but knowing the cost of each, you are prepared.
In each case, your starting point on the left, Price of goods/services, is above the average competitive price because of the addition of value adds. Using hypothetical numbers:
Best Case Scenario
- High Price of goods/services +3 Value Adds (cost + margin) = $10.5 M
Good Case Scenario
- Medium Price of goods/services + 2 Value Adds (cost + margin) = $9.7 M
When you negotiate a deal that only requires applause, not excuses, you’ll have a very good year.