Negotiating an agreement with a client is often perceived as requiring the development of a completely different selling muscle:
During the sales cycle, we’re doing things to add value to the buying journey, building trust and providing the information a buyer needs to make a confident, informed decision.
When the typical negotiation “event” happens near the end of the sales process, we tend to flip the script. Do an online search for negotiating tips. You’ll find techniques analogous to those used with hostage-taking fugitives. You’ll also find tips including, “aim high, open with an extreme position” and “the secret to gaining the upper hand in a negotiation is to give the other side the illusion of control.”
Extreme position? Illusion of control?
Why do we throw the rules of trust to the wind when it’s time to negotiate? Why does negotiating an agreement with a client mean it’s time to play mind games, stop being transparent, and erode as much trust as possible right at the finish line of your deal? Lives are not at stake, but your deal value could be.
It may sound totally counterintuitive, but doing the opposite – playing your cards face up on your pricing model – consistently results in
- Elevated mutual trust right through to the finish line
- Higher deal values where clients are giving you something for everything they take
- More predictable deals
How? Well it’s actually pretty simple. Your pricing is probably based on four things:
- Volume: How much product or service the client is willing to commit to purchase. You likely incentivize buyers through pricing tiers to commit to more of what you’re selling, right?
- Timing of cash: How fast the client is willing to pay. I would also assume that you and your organization like money…and would prefer that a client agrees to pay up-front, versus paying as they use the product, or pay monthly or really anything greater-than NET 30.
- Length of commitment: How long the client is willing to commit to the product or service. I would guess you would greatly prefer longer client commitments versus shorter commitments…or even no commitment at all.
- Timing of the deal: When the client is going to actually make the commitment. I would also guess it helps you to have an accurate forecast.
These aren’t a secret…so why pretend that they are?
To start with, play these cards face up from the beginning. You’ll find that trust is magically strengthened, and collaborative deal making takes place.
When the client asks, “How do you price?”
Explain your pricing model, then teach them about the levers that drive your business. For example, you could explain, “Well, our pricing is based on two elements: the number of users, and which modules you select. The model provides incentives for committing to more users and more modules up front (volume). Our core pricing is based on annual, up-front payments (timing of cash) and a minimum of a one-year commitment (length of commitment).” As you discuss timing (timing of the deal) with the client, that will become the fourth lever in the proposal and during the actual final negotiation.
When you deliver the proposal
In the proposal itself, your pricing should clearly identify that the proposed investment provides a break based on the amount of volume they’re committing to, and is based on annual up-front pricing with a one-year commitment. Also include clear language (assuming that you’ve already discussed this lever) that your “pricing is based on a formalization of an agreement by (a specified, reasonable date).”
The client has now said “yes” to moving forward, and wants a last minute discount…whether it be directly from your buyer or via procurement. Here’s where the foundation of your simple, transparent framework pays off:
“As we’ve outlined throughout the evaluation, our pricing model is based around the four things we, as a business, care most about. We obviously are interested in having you commit to more technology, pay faster, commit longer, and help us forecast our business. The pricing we’ve provided reflects those elements. In order to address your need to bring the price down further, we may have a path to doing so.” Then, take them through the levers again. Can they commit to more technology to earn a higher percentage discount? Can they pay faster to earn a higher discount? Can they commit to a longer term? Can they reconfirm or even accelerate the agreement formalization date? You’re not a charity – and given these levers are all things your company and your compensation plan care about, they are also things you are likely willing to pay them for in the form of a discount.
As issues come up, they all tie back to one of these four levers. For example, if a client wants termination for convenience language, instead of simply saying “no”, you can now say, “yes, but there’s a significant cost associated with it. Since this type of language means there is no commitment, your pricing will need to reflect that.” Then, remind the client that they have “warranty” language in the contract that covers them when something goes wrong. In another example, if the client wants to pay monthly, again you can explain, “as discussed, a fundamental core of your proposal is based on the timing of cash. So, we’ve paid you in the form of a discounted price based on annual, up-front payments. If you need to change that to monthly, we’ll need to adjust the price.”
I don’t work in your organization, but since you’re still reading, I’m assuming I’m correct in that your organization cares about those four levers outlined above more than just about anything else. It’s likely reflected in your pricing, and it’s likely reflecting in your compensation plan. You’re incentivized to hit a volume target, likely paid faster when a client pays faster, are likely rewarded for longer commitments (or penalized for shorter commitments), and have a quota based on hitting period-based targets, right?
Of all of the talks I give and the classes I teach, this one has had the greatest impact. Negotiation doesn’t need to be difficult. It doesn’t need to require a degree in psychology and two days off-site reading eye-movements and practicing breathing techniques to conceal your “tells”. Learn the four levers. Work with your leaders to assign the value to each. Make it a part of your discussions around how you price, include it in your proposals, and when the “formal” negotiation happens, you’ll find your prospects are configuring their own deals, and paying you for their discounts. Negotiate transparently!