The Art of the Deal: How to Become a Master at Business Negotiations

The Art of the Deal: How to Become a Master at Business Negotiations

You may not think of yourself as a master negotiator, but everybody can make use of negotiation skills–even the best negotiators can improve.

At Ladder, we spend a great deal of our day negotiating: pitching strategy, agreeing on target metrics, briefing designers, etc. All of these tasks involve negotiation skills.

Whether you’re a local small business owner or an executive at a large enterprise company, your job centers around collaborating with a diverse cast of people from different disciplines, companies, and backgrounds to achieve your goals.

It is only natural that sometimes those goals conflict, and that’s where negotiation comes in.

Whether it’s convincing a client you’re meeting their expectations, pushing back on unrealistic performance targets, or begging a developer to give you a quick turnaround on an urgent task, learning how to deal with conflicting incentives to achieve your goals is a key skill.


Building a Reputation

“It takes 20 years to build a reputation and five minutes to ruin it.” – Warren Buffett

Despite what you might think, negotiation is not an ‘all or nothing’ game. Negotiating rarely involves manipulating the other side into a deal they’ll regret.

If the other side feels manipulated, the damage to your reputation can quickly outweigh any short-term gain from “winning” the negotiation.

Our tendency to punish “takers” and reward “givers” is a key part of why humans are able to build and maintain a vast and complex global civilization. 

In studies using the “ultimatum game”, one person decides how to split $100 and the other decides whether to accept or reject (both get nothing), the average split was about 50/50.

It would be perfectly rational for the proposer to offer $1, and for the decider to accept it – after all it’s better than nothing, right? (Fun fact, when Chimpanzees play the ultimatum game, that’s exactly how they reacted!)

The fact that humans are willing to sacrifice anything up to $40-$50 just to punish someone giving out an ‘unfair’ amount, shows millions of years of evolution has driven us to self-select for people who operate on principles of fairness.

Business Negotiations Example: The Ultimatum Game
Photo Credit: Medium.com

If that wasn’t true, none of modern life would be possible; we constantly interact with complete strangers to buy everything we need, entirely on trust.

Though it might not feel like it if you watch the news too often, we rarely get savagely attacked or taken advantage of. People more or less deliver what they promise, even when they could easily get away with cheating us.

It’s important you keep this in mind when negotiating – this isn’t a one-off game and it’s not happening in isolation. The way you negotiate can be just as important in the long-term than the outcome of the negotiation. [Tweet This Tip]

You do, however, need to protect yourself. Many businesses have been built on the fact that most people would rather pay more than avoiding conflict.

In fact, many businesses price their goods and services on the assumption that their prospects will negotiate–whether you’re buying a Moroccan rug or buying marketing automation software, simply asking for a lower price can save you thousands.

Money Isn’t Everything

However it’s not just about avoiding being overcharged: money is just one aspect of a negotiation, and often getting better quality, getting what you need faster, or avoiding complication are valid outcomes to aim for.

People regularly pay more for convenience, better service, faster delivery, higher quality merchandise, or even just because they more closely identify with a brand.

Smart negotiation starts with figuring out what you truly want out of the deal, and what you’re willing to compromise on to get it.

Expert negotiation is about figuring out what the other side wants out of a deal, and how you can better accommodate it to get more of what you need. [Tweet This Tip]


The Art of Negotiation

Negotiation is a creative discipline.

The best negotiators think outside the box and come back with terms that neither side thought was on the table. This is particularly useful in salary negotiations with your employer.

But keep in mind that not all money is worth the same. Businesses have different pots of budget for different activities, so it’s quite possible a $5,000 business trip can be approved without a raised eyebrow, but a $500 bonus might need personal approval from the CEO.

The same principle is useful when working in sales: the marketing department might be strapped for cash, but get a product manager interested and they’ll pay the invoice on the spot.

In this section, I’ll outline 9 essential business negotiation skills and strategies that will help you score the best deal.

Frame the Picture

Quite often the reason someone is negotiating with you at all is that they aren’t thinking about what you’re offering in the right way. They have tunnel vision and therefore don’t see your product or service as a slam dunk.

It’s well known that anchoring a user to a higher price works. Everyone loves a bargain, so businesses say “was $299, now $199” to take advantage of that.

Priming also works: having the right sights, feelings and smells can convince you to pay luxury prices for what is essentially the same service.

But framing doesn’t have to be manipulative–quite often it can be helpful. For example, pointing out to a CEO that even spending 10 mins of his time every week is worth thousands of dollars to the business, can convince him/her to pay hundreds of dollars to save that time, making both of you better off.

Choosing the right frame of reference is important. There is no objective reality when it comes to negotiation: everything is subjective.

Applying a New Frame of Reference in Business Negotiations
Photo Credit:  SlidePlayer

Nespresso can either be a ridiculously expensive alternative to instant coffee or a cheap alternative to Starbucks.

Bottled water can be a wasteful alternative to tap water, or the only clean source of water for miles.

Teleconference software can be an excuse to slack off from home, or a cheap alternative to business travel.

Finding the right frame of reference can make both sides much happier with the outcome of a negotiation. [Tweet This Tip]

Leave The Past Behind You

One common mistake inexperienced negotiators make is to get hung up on past value rather than future value. Once something is in the past, it’s in the bank. People are usually only loyal because they expect future benefit from working with you.

That’s why it’s possible to get double-digit pay rises by moving jobs, but loyal employees struggle to get 1-2% annual increases. The new employer is thinking about the future of what’s possible with you, whereas the existing employer is discounting any benefit they’re already getting from you.

When you enter into a business negotiation, leave the past behind you. Use it only as an example of your credibility in terms of being able to deliver future benefit. Getting hung up on the past will only lead to frustration as you expect a payoff for all your hard work and loyalty, and get written off. [Tweet This Tip]

Map The Territory

The best thing you can do before a business negotiation is to draw up a map of your preferences.

What do you need out of this deal? What would be nice to have? What could you care less about? What is the relative weighting between these variables?

Say you’re hiring a new marketing agency. Your map can look something like this:

Negotiation Tactic: Map the Territory

Notice that price/cost isn’t the biggest factor. Our time is almost always more valuable than our money (you can’t make more time), and some vendors won’t be able to deliver on a critical point even if money was no object.

Simply taking the time to brainstorm and write down these questions ahead of the negotiation will force you to think much more clearly about what a good outcome would be. [Tweet This Tip]

To really give yourself the best possible outcome, think about the other side’s preferences. You might not care very much about payment terms or a case study, but for a small marketing agency looking to establish itself, this can be worth enough to negotiate a hefty discount.

Often, just coming into the discussion having thought about what the other side wants, puts you at a huge advantage in terms of achieving your goals. Sadly, most people still just wing it, and are caught completely off guard if you can show you’re being thoughtful and empathetic.

Always Get What You Give

It’s inevitable that you will have to compromise on some issues in order to get a deal done. What’s important is that you never give something up without asking for something in return.

If they ask for a lower price, ask for better payment terms.

If they want to get up and running quickly, ask for a smaller scope of work.

If they want a performance-related contract, ask for some money up front.

If they insist on working together with a non-standard process, get a commitment to turn it into a case study.

By never conceding on a point without getting something in return, you’ll get more value out of the deal and dissuade them from asking for further concessions. Making them work for the deal also helps psychologically; they’ll feel like they got everything they could and be happier with the overall outcome. [Tweet This Tip]

Business Negotiation Tactic - Give What You Get

If no other terms are on the table, and you must negotiate solely on price, make sure your concessions decrease each time you make one. For example, you might drop from $100 to $80, then $70, then $65. Because your increments are getting smaller, from $20 to $10 to $5, they will get the signal that you have less and less to work with, and are much more likely agree.

On the buyer side, a nice simple rule is to keep splitting the difference. So if you’re buying a product for $100, a good opening bid is to offer $50. If they counter with $80, you counter with $65, which is halfway between $80 and $50. A price of $75 gets countered with $70, and typically at that point, you have a deal.

This works because a half-price opening bid stings, but won’t cross the line to being offensive. Then so long as you always split the difference, you naturally decrease your increments while avoiding getting emotional because you’re just following a simple algorithm.

Following this rule, you typically end up at about 2/3rd of asking price. Of course, not every product or service has a 30% margin, but it’s a pretty decent guess if you know nothing about the industry going in.

Most vendors would, of course, like to make the full margin on their goods, but they also know that the marketing and sales costs needed to get an alternative buyer, or the cost of holding inventory could be worse than letting you eat into their margin. As they say, ‘a bird in hand is worth two in the bush’.

Time Is Of The Essence 

Timing is often a key element to whether you can get a good deal. As well as incrementing your price offers and counters, you should be tactically timing your responses in the same way.

Countering too quickly will make it seem like you aren’t serious about the price; slowing down and giving a well-considered response will send the signal you really care about each incremental dollar and point of negotiation.

Even if you know you will ultimately accept their terms, taking your time will make them feel much more satisfied with the deal after it’s done. A quick response is disrespectful as if the interaction means nothing to you.

Time Is Of The Essence When It Comes to Business Negotiations

As you get closer to a deadline, the side that needs the deal more will increasingly make concessions. That’s why if you join a gym in December you can get a much better price than January when everyone starts to work on their New Year’s resolutions.

If you’re the one with the deadline, be careful not to let them control the speed of the conversation. Find ways to instill urgency, like revealing that you’re talking to other suppliers or other buyers to make them feel FOMO (the fear of missing out). [Tweet This Tip]

Be Willing to Walk Away

Want to put a smile on a real estate agents face? When they’re showing you a house, turn to your partner and proclaim within earshot “this place is perfect, we have to have it”. Whenever you’ve resolved to buy something, the negotiation may as well be over.

Limiting your options gives the seller monopoly power: if there are no other options, then they can charge whatever they want. Coke keeps its prices stable because even though some prefer it, at some price even a die-hard loyalist would switch to Pepsi.

If the person on the other side of the negotiating table figures out that you have to make this deal work, you lose all of your leverage. Being willing to walk away is the antidote to that.

Be Prepared to Walk Away
Photo Credit: Kellog Insight – Northwestern University

It can be tough to walk away: psychologically nobody likes giving up on a deal, particularly one they’ve put a lot of work into. Just know that the more you need to do a deal, the more you should expect to pay for it.

Going into a negotiation, it can help to imagine the worst: what would happen if you can’t get a deal done? What would you lose? Would you gain anything? What could you do instead?

Often you’ll find that you do have a lot more options than you thought. This is where it comes back to creative thinking: there is always an alternative, and the world rarely ends when a deal falls through, even if it seems unthinkable at the moment.

Having a BATNA (Best Alternative To Negotiated Agreement) decided upon before you start a business negotiation can help you make an objective decision on when it’s the right time to walk away. [Tweet This Tip]

Don’t fake it: once you walk away, if the other side doesn’t back down, you truly have to be willing to accept the consequences.

Listen More Than You Talk

One counterintuitive rule for negotiation is that the first person who talks, often loses. This is because you give away valuable information, perhaps out of nervousness, that your opponent can use against you.

For example, say you’re negotiating with a vendor and they ask what your budget is, and you tell them. The outcomes are as follows:

  • Your budget is higher than their price, so they increase their price
  • Your budget is lower than their price, so they counter with their price
  • Your budget is too low, so they decide to walk away entirely

Either way, you lose: you either have your budget ignored, used up entirely or you risk blowing the whole deal by lowballing them.

So in a negotiation, keep track of who is doing all the talking: if it’s you, stop and listen instead. You will be surprised at how much information you can pick up when you’re actively listening. [Tweet This Tip]

The Importance of Active Listening in Business Negotiations
Photo Credit: The Prospecting Expert

Are they hinting that there is more flexibility in the price if a deal can get done before the end of the month? Are they inflexible on some things but willing to help you in other ways?

It’s rare that even the first two or three things they mention are their real motivations: continuing to ask why, and being genuinely interested in their responses can reveal hidden motivations or limitations they weren’t even thinking of themselves.

A great tip is to just simply ask them why they want to do a deal. Most people will automatically tell you out of politeness, and then even go as far as convincing themselves out of internal consistency that they really do want to do a deal with you more than they thought.

Successful Sales Negotiation Tactic from Naval
From Naval (@Naval) via Twitter

Shamefully enough, on the opposite end of the spectrum, lots of salespeople talk so much the buyer can’t even give the game away if they tried! If you ever find yourself interrupting the other person to get your point across, you’re doing it wrong.

What Are They Not Saying?

Sometimes your opponent can’t say what they want. It can be a cultural thing where they don’t want to lose face in front of you or say what they really think in front of their boss. Sometimes you have to intuit this by being empathetic to their situation.

Much of the world’s conflict is perpetuated because one or both sides don’t want to be publicly embarrassed into stepping down. Sometimes it’s better politically for someone to lose a deal or even a job than accept terms that would bring shame upon them from their colleagues or peers.

If you find your opponent being ‘irrational’ on a specific term and not backing down, take some time to step into their shoes. A good trick is to assume they are being rational, then figure out what would have to be true to explain their behavior.

Once you know what incentives are at play, it’s often trivial for you to change the course of the negotiation towards a more amicable solution that works for both sides.

Culture and etiquette are situational. The very same person might behave entirely differently at work or at home, with the boss in the room or on a conference call, in written communication, in-person or on the phone.

What Are They Not Saying in Negotiations

Therefore, it’s very important that you choose the place and time you negotiate wisely. Don’t be afraid to assert control over the environment in order to put yourself in the best possible place to get the deal you need done. [Tweet This Tip]

Even if you can’t entirely control the process, because there are set rules and formalities, finding less formal ways to communicate or backchannel is often essential to high stakes negotiation. Leveling with someone caught in a hallway can be an effective way to build trust and move things along.

Transparency Is Velocity

You’re probably thinking why would anyone give up their preferences willingly? Won’t it hurt them in the negotiation if they tell you what they really value?

Sure, sometimes this is lack of experience or naivety. Sometimes it’s a tactic to throw you off the scent or manufacture rapport, but more likely than not, it’s rational behavior.

There’s a saying that all experienced salespeople treat as gospel: “time kills all deals”. The longer you spend negotiating, the bigger the risk that you’ll lose the deal entirely. [Tweet This Tip]

Delays happen for all sorts of reasons, and in some situations delaying the deal arbitrarily can be a manipulative tactic to get a better price. However, with every second of delay, you’re gambling with the likelihood that the other side just gives up and moves on.

So long as it’s an honest transaction that truly benefits both sides, transparency can help. Being truthful about what you need, when you need it and what your alternatives are can help you get a closed deal quicker. [Tweet This Tip]

In Business Negotiations, Transparency is Velocity

This method is impactful when you’re optimizing for the long term because it builds trust: gaining a reputation as a straight shooter can pay dividends over repeated interactions. This helps not just with the person you’re negotiating with, but also anyone in your industry that person tells.

Try building this habit for less important deals where you can afford to get ‘good enough’ terms. The trust you build on smaller deals often becomes invaluable when you eventually get into a bigger deal with someone you’ve worked with successfully before.

If someone has said yes to you in the past, they’re much more likely to say yes again in the future. In fact, it can be a successful technique to purposefully do a few small deals with a customer before graduating to bigger things. [Tweet This Tip]

Some purchases just aren’t that important for one party, even if it’s life or death for the other. A multinational company might care less about a $10,000 purchase, but it could mean making payroll (or not) for a small business owner.

Therefore when you really don’t care about the parameters of a deal, and you just want to get it done as quickly as possible, being completely transparent can help.

If you stop playing the game, and say “I can do this deal today if you give me X”, the other side will be forced into a quick decision, and you can both move on with your life.

If you think about it, this is the norm for most transactions: if you haggled over the price for every item you bought at the supermarket, you’d never get out of the store!

Think about the other side’s motivations: to a millionaire, spending $1,000 might only warrant the same care and attention as you’d give to buying a Latte.

If you’re the millionaire, remember not to get caught up on principle or needlessly delaying a deal that won’t affect you, if it would mean a lot to the other side. Leaving some money on the table could win untold loyalty and appreciation, that could pay off more than you realize further down the line.

At the end of the day, anyone can read the thousands of blog posts and books about negotiation that profess methods for manipulating your opponent into submission, but these things are short-term strategies at best.

If you take one thing away from this post, it should be that good negotiation is about empathy. Genuinely caring about the other side, or finding a way to be on the same side, is the only path to long-term negotiation success. [Tweet This Tip]