A Top Negotiator’s Formula Every Social Entrepreneur Needs To Know
By Mark Eckhardt. Edited by Meaghan Pachay.
When we struggle to close deals or end up in bad agreements, popular business thinking suggests that our value proposition needs improving or that we have chosen the wrong market, created the wrong product, priced incorrectly, etc. But this is a narrow view that can send people looking for solutions in the wrong places.
More often than not, low closing rates, or failing to get what you need even in the deals you do close, has to do with a lack of preparation. When you enter negotiations without a plan or framework, you put yourself in a position to chip away at what you need compensation-wise right from the start. That dials up the pressure on you, cuts off your options, and increases the likelihood of feeling like you’ve sold out on yourself and that the deal(s) is not fair.
Below, we’re sharing an adapted approach from top negotiator Chris Voss that will keep you out of bad deals and ensure you get everything you need from the ones you do enter.
1. Create pricing tiers that you can negotiate from. Pricing options should be at the following percentages above or below your target price:
- Selling: +40%, +20%, +10%, +5%, 100%
- Engaging a service: -65%, -85%, -95%, 100%
2. Create an anchor that sets the stage for the negotiation. Your anchor is the price your enter negotiations at. For sellers, your anchor is 40% above your target price. If you are a buyer, the anchor should be 65% below your target price.
- Seller Scenario: $101 (target price) + ($101 x 40%) = $141.40 anchor price.
- Buyer Scenario: $101 (target price) x 65% = $65.65 anchor price.
Tip: Don’t use round numbers like $20,000. Use precise non-round numbers. Figures like $21,893 register in the brain as having more credibility and weight.
3. Empathize with your counterpart. Mirror and reflect back what you hear them say until they say, “That’s Right!” You want to affirm that you’re listening and you care. Note “That’s Right” is different from “You’re Right”. The former might be a false indicator of trust or a capitulation used to get out of the negotiation. If you hear “You’re Right,” keep summarizing what you’ve heard until your counterpart says “That’s Right” and you see their body language or hear the tone of their voice shift. At that point, you are ready to start the negotiation.
4. If you arrive at your target price (your final number), throw in a non-monetary item like a free pass, an introduction, etc. to show you’ve reached your limit. Introduce the non-monetary item by stating, “I cannot go any lower, but I can do/add……[insert your non-monetary item].”
Researchers have found that receiving concessions often makes people feel better about the bargaining process than those who are given a single firm, fair offer. In fact, they feel better even when they end up paying more—or receiving less—than they otherwise might. So given human psychology, you should never reply to an initial offer or counter with a No. Rather, summarize the situation then use a how or what question that will engage your counterpart and shift them into a helping mode.
For example, if you are engaging a service provider you can say, “I appreciate your offer. I see that you’ve put real thought into it. But other services are being advertised for less, and, even though you are a top provider, how am I supposed to pay the extra $1000?”
If you’re the one providing the service and the prospective client starts a negotiation off with a low anchor, try this approach: “I appreciate your offer, and really want to work with you. But I’m sorry, I cannot help you for that amount. Would [insert your anchor] sound fair to you?” You’ll likely be met with some form of, “We cannot pay that amount.” In that case, your reply should be, “How did you arrive at the price for this project?” That will prompt an explanation that you can counter with the costs of not doing a deal. For example, “Based on our conversations, another week of no action will cost you $5,000. How about, [insert your 2nd price tier]?” Keep cycling through your pricing tiers until you reach an agreement or not.
No deal is better than a bad deal. If you arrive at your target price after a few rounds of negotiations and cannot get your counterpart to agree, walk away.
Preparation is everything. If you take the time to set yourself up for success, you will close more deals and agree to terms that fulfill on what you want and need.
Bonus: To help you establish the right pricing options and anchors for you, we created a FREE calculator.
Disclaimer: Some of the concepts in this piece were adapted.
Source: Never Split the Difference by Chris Voss.