I will come out and say it honest and simple: I sucked at negotiations. I never learned to negotiate in my home country, the Netherlands nor in Toronto. Thanks to living in India and Mozambique I got a crash course a number of years ago.
During a short training, I was initiated in negotiating the price for a taxi ride or a product. A few things were key: know when to negotiate (the margin of a deal is significantly less on food as it is a taxi ride for example), understand the cultural implications for your behaviour and walk away at the right time.
As a start-up and as any small business, you need negotiation skills. Often, prospects realize you are willing to give a discount because you are new and have only a few customers to speak of yet. Some people want a discount in any case because they are cheap. Others could really use a discount because they may not be in the position to use all the fabulous features of your service.
How do you define when to give a discount? The three lessons I was taught in a crash course continue to hold true now I run a small business.
Know when to negotiate
As I am now “on the other side”, I have a better understanding of your positions. I just can’t give my entire business away for free! But yeah, I do understand the need to pay monthly housing rent.
So when do I allow myself to open up for negotiation? The answer is simple: when I know the service I provide is of value to the prospect and I can continue to deliver value for a discounted price.
An important part of this is to help your prospects self-select. Having a clear marketing and sales funnel will help for sure. In the case of my own business, there’s a free trial of the Perspective Plan. Before diving into negotiations for a perfectly decent price (I assume you, as the business owner, have done your research and stand a 100% behind your pricing structure), ask potential customers to sign up for the free trial or consultation.
Point being the trial, free consultation or whatever you have for trying out your service, is to show your value. If you have a tiered sales funnel, there is nothing wrong with offering a discount to the next tier when the prospect turns out to be a qualified potential customer.
(Please note that potential customers may enter your sales funnel in different sections.
Understand the (cultural) implications for your behaviour
We all have a learning style, a leadership style and a negotiation style that grew on us through exposure and experience, character traits and what we were taught early on in life.
There are four basic negotiation styles and it helps to understand yours, so you can maximize your negotiations by finding the right balance for each unique negotiation situation.
Individualistic style – focused on your own benefit
Cooperative style – wants to maximize both parties’ outcomes
Competitive style – tends to be self-serving and wants to have the big win
Altruistic style – tries to maximize others’ outcomes rather your own
The cooperative style tends to reach most agreements and best outcomes. This is because people with this style tend to place value at the centre of the negotiation. No matter what style fits you, be prepared (and not desperate) and know what you want to get out of this negotiation.
When you work in a diverse community, it is a good reminder that different cultures have different styles they embrace. For example, many Asian cultures are well known for their cooperative negotiation style. Sticking to your preferred style may clash with someone else’s style, resulting in a (highly potential) negative result.
Walk away at the right time
The best way to manoeuvre in a negotiation is to have as much information as possible. This will provide you with common interests, the value perceived and given, and leverage.
Time invested in exploring services you offer, makes it harder for the potential buyer to walk away. After all, you have been respectful of time and information and most probably already provided value for free by asking the right questions.
When prospects ask for a discount before exploring your service, you may wonder if this is a potential high maintenance customer with low return and whether they have done their homework?
If you have enough information to know the potential customer is very far away from your ideal customer, walk away and save your energy and value for someone that does understand and is willing to pay for it.
Image Credit: by Frits Ahleveldt-Laurvig via Flickr.com.