Tutorial: How To Negotiate a Final Deal

Negotiations can be frustrating, especially if you already feel as if you've "closed the deal." However, it's a truism that the deal isn't really closed until the final contract is signed, and it's that final contract that comes out of the negotiation process.

This post provides a step by step formula for negotiating a final deal. This is a skill that every sales professional must absolutely master, but beyond that, it's a crucial skill for anybody who wants to be successful in the business world.

I strongly recommend that you bookmark this post, because it contains the kind of information that you'll use throughout your career. When you want it, you'll want to get at it quickly. To see first step, click on the green NEXT button.

NOTE: This post is based largely upon a conversation with Randall Murphy, the president of Acclivus R3 and replaces the broken Sales Machine post "Negotiate the Best Deal in 6 Easy Steps."

STEP #1: Lay The Groundwork
As soon you're certain that there's a deal in the offing, immediately begin to strengthen your negotiating position by laying the groundwork for the eventual discussion. Here's how:

• Eliminate competitive threats by avoiding situations where a competitor already has a "lock" on the deal and by constantly positioning your offering or idea as something unique and valuable. This puts you in a solid negotiating position because, ideally, the other party will lack a viable alternative to hold over your head.
• Develop multiple contacts in the organization with which you're working, and use those contacts to gather and provide a deeper perspective. This help you understand the motivations and politics behind the deal, will make it easier for you to understand why somebody may take a particular position during the negotiation.
• Generate legitimacy through the consistency of your approach. Take a gradual approach to getting everyone on board, and working through the issues logically as a series of "closes". This creates the impression that you're a thorough businessperson who can be trusted. Because of that, you'll be believed when you make statements during the negotiation.
• Create a theme of mutual success that matches the needs of the various decision makers and stakeholders. To do this, you crystallize needs and help everyone visualize a viable approach, so that everyone involved sees you as a valuable resource and thus more likely to defer on negotiating points that you see as being important.

STEP #2: Prepare for the Negotiation
Before actually sitting down to negotiate final terms, ask yourself four questions (in your own mind if not on paper) that will help you understand where you are now, and where you'll need to get, in order for the negotiation to be successful:

• Question 1: What are the parameters that need to be negotiated? Collect and evaluate information on leverage, values, sale prices, competition, and other factors that will affect the negotiation. Example: You know that the CFO greatly desires a three-month ROI, rather than the six-month ROI you've proposed. You are therefore aware that you may either need to adjust the price in order to produce that ROI, or come up with some form of alternative financing, like rent to own.
• Question 2: What are my realistic expectations for the results? Temper your aspirations with feasibility based on what your counterpart has in mind, and reassess your expectations as the negotiating progresses. Example: You know that your counterpart expects to pay only marginally more than they paid ten years ago for the same service. You're not going to get double the old price, no matter what. But you might get a 33 percent increase.
• Question 3: What are my all-important pricing parameters? When it comes to price, know the deal you want to forge, and be able to justify it as being realistic. Example: You know that the largest discount you can possibly offer to still remain profitable is 15 percent. Because of that, a discount larger than 15 percent is not acceptable under any circumstances.
• Question 4: Where do I have room to maneuver? Leave yourself some bargaining room, but make sure you have a plausible rationale for the positions that you take. Example: You know that your installation team is idle right now, so you can realistically offer the customer an immediate installation, if they're willing to pay full price.

• Style #1: Competitive. The negotiation seen as a win-lose proposition. Concessions by one side are viewed as a victory for the opposite site and the emphasis is on having your side win at all costs. Such negotiations generally damage customer relationships, because one side ends up feeling as if they got screwed.
• Style #2: Cooperative. The negotiation is seen as a give-and-take proposition. Both sides are trying to be fair to one another, and see the need for a long term relationship and thus the negotiation is all about compromise and on not losing too much. Such negotiations seldom damage relationships, but they don't improve them either.
• Style #3: Collaborative. The negotiation is seen as a win-win proposition. Both sides see their goals as aligned and work together to forge an arrangement that moves both agendas forward. The emphasis is on finding a way for both sides to win, big time. Such negotiations are the building blocks of strong customer relationships.

However, you can't be collaborative unless the other party sees the negotiation that way, too. If a prospect is convinced that the negotiation is a competition, you'll sometimes need to play that game, even as as you gradually lead the prospect into a more cooperative attitude.

The next step will help you manage this delicate balance act.

STEP #4: Beware of Mind Games

If you're negotiating with a top executive, there's a good possibility you'll be the recipient of a mind-game -- negotiating tactics intended to throw you off-balance, so that you'll make more concessions than you'd normally consider. Here are the six most popular:

• Mind Game #1: The Palatial Environment. Some execs have impressive offices, or invite you to a ridiculously luxurious venue, because they want you to be awed and grateful even to be there. If you are, you're as stupid as teenage girl who's impressed by a neat car.
• Mind Game #2: The "He's Too Busy" Routine. Execs sometimes make you wait to see them, even if you have an appointment, in order to make you feel that the exec and his desires, are more important that you time and your desires.
• Mind Game #3: The Underling Gauntlet. Execs often use underlings to make you feel like an underling. If you're not careful, you end up feeling "socially" bonded to the underlings and thus in a subservient position while meeting the exec.
• Mind Game #4: The Way-Too-Sexy Assistant. This is old-school stuff, but it's still practiced in some industries. The idea is to dangle a sex object in front of you, so that you'll focus on the possibility of having sex rather than cutting the best deal
• Mind Game #5: The Meeting Extension. Execs often set low expectations of the amount of time they'll be spending, so that people feel complimented if they spend more than that amount. Don't be complimented; the exec probably had a whole hour blocked off anyway.
• Mind Game #6: The Big Wait. Execs sometimes delay negotiations hoping that you'll get all antsy and want to close the deal just to get it closed.

STEP #5: Don't Let It Get Personal

Once you're clear on the deal you'd like to forge, and know where you've got wiggle room, sit down with the the other party and talk about the issues.

As you negotiate, do not allow the prospect to feel as if he can simply dictate terms. That's a recipe for a win-lose outcome, with you on the losing end of the deal. Whenever you take a position, be sure you can buttress it with appropriate rationales. Be specific about your facts and don't let the negotiation process become emotional. Remain detached and objective.

Here's an example:

• CFO: We'll need you to offer this at 35 percent below your asking price in order for this deal to go through.
• You: I'm sorry, but if we sold it to you at that rate, we'd be losing money on the deal.
• CFO: What kind of idiot do you take me for? I know for a fact that you gave Acme a 35 percent discount.
• You: That was a one-time situation because we needed a reference account in that industry.
• CFO: Why can't we be a reference account?
• You: Of course, but you'd be a lousy reference account if we gave you a 35 percent discount, because then we'd have to give everyone else the same discount, which would put us out of business.
• CFO: Why should I care?
• You: Let's just be practical here. I've already offered the largest discount that's possible. If you're short on money, maybe there's a way we can scale down the deal, or come up with long-term financing, so that it becomes more affordable.

STEP #6: Stonewall Last Minute Demands
The purpose of the negotiating process is to reach a contract or a written agreement, and the negotiation isn't over until it is signed.

Even so, there's a point in every negotiation where the deal is pretty much what it's going to be. If you've found that you've gotten pretty much what you wanted, don't sweat the stuff that you didn't get. When you've reached that point, it's time to stop.

Sometimes last-minute demands magically appear after a negotiation has been completed. They're usually positioned as "deal breakers" but most of the time they're something else altogether-a simple test to ensure that the negotiated deal is the best possible agreement.

Unfortunately, many sales pros simply give in to such demands, because it seems as if the prospect-the person with the money-holds all the power.

Giving in to any last-minute demand is a huge mistake, because here's what's going to happen:

1. Your prospect makes a last-minute demand.
2. You don't want to lose the sale, so you run back to your management to see whether you can get that demand met.
3. After a lot of extra work, you get internal agreement, and then you run back to the prospect with the good news, expecting to close the deal.
4. Surprise! Your prospect now has another, even bigger demand.
5. You run back, and after even more hard work, get agreement.
6. You go back to the prospect, hoping to close the deal.
7. Surprise! Another demand!
8. Etc.

If last-minute demands crop up, hold firm to your position. In most cases, the customer will be relieved at this confirmation of your legitimacy and will take the demands off the table. Here's an example:

You: Well, I think we're done here. We've got the basic terms in place and we have a start date.

• CFO: I'll need to check with the CEO to make sure we can go forward. I'll give him a call. [Leaves the room]
• CFO: [Returns] He says we'll need you to go 20 percent lower or the deal is off.
• You: Gosh, that's too bad, because I've already given you the best price that I can. I'm really sorry that we can't make this happen. [Get up to leave]
• CFO: Just a second. [Leaves to make another call]
• CFO: [Returns] Let's go forward. The CEO says he just wanted to make sure he was getting the best deal.

RELATED POSTS:

• Five Rules for Negotiating a Win-Win Deal
• Donald Trump's Negotiation Mind Games
• Are You Selling or Negotiating?