This is a short primer on how to conduct a successful price negotiation with your B2B client. Paradoxically, most of the work required to close a deal — is done BEFORE the negotiation itself. Two key factors to a successful outcome, that of closing a deal, are:
- The right attitude (tips 1 to 3)
- Be prepared: do your homework (tips 4 to 7)
At the end of this post, you will find a visualized decision tree which will help you negotiate.
The Right Attitude
Sales and price negotiations require you to have a particular kind of attitude. Remember that negotiations almost never go as planned. Your client might ask you for a deep discount you weren't expecting. He or she may threaten to walk away unless you agree to certain terms. Without the right attitude, you can get caught completely off guard and make poor decisions for your company.
Remember, no one likes to be rushed, negotiate under pressure, or be manipulated. In order to close a deal, both the client and you must feel happy about the final terms. If the client pressures you with a deadline or demands an answer right away – do not rush. Instead, slow down and take time to think. Most likely, your client can wait.
So what's the right attitude? Follow these principles:
1) Negotiation is not lying or manipulation.
Be honest. If you stick to the principle of being completely honest with your client, you will not fall into any traps of pressuring your client and losing his or her trust.
2) Avoid negotiating under any pressure.
Step back and make sure you make thoughtful decisions that will not hurt your company.
3) Slow down.
You'll think more clearly and also give your client a chance to think.
Be Prepared: Do Your Homework
Sun Tzu said, "Every battle is won or lost before it is fought."
This is true for successful sales negotiation. Before entering a negotiation, you must justify the price by focusing on the value your product provides to the client. As mentioned above, your arguments must be honest. They also must be convincing, in general, the more quantitative your argument, the stronger it is. Compare the following two arguments:
"Your employees will be more productive."
"I studied your business. If you start using our product, your revenue will increase 3–5%, and your ROI for our product will be 300%."
4) Do research. Study your client. Calculate.
First things first. Make sure that your product really solves the problem and saves money and/or time for your client. Try not to engage in money talk too early in the conversation. Talk about value first but if the client asks to reduce the price, be ready to justify the price.
This is where your homework comes into the play. Know how the client's business works. What problems is the client is trying to solve? How can your product specifically can add value? Calculate how much money and time can be saved.
If you are able to calculate or project (based on similar client profiles) the revenue increase and ROI — then do it. The client will appreciate it. Everyone will pay for a product which provides more value than it costs, if you can back that up. Calculate or estimate any measurable benefit:
- stronger sales
- customer acquisition
- customer loyalty
- employee retention
- employees save time
5) Offer non-monetary benefits to your client.
Another type of homework you should do before starting a negotiation is to make a list of non-monetary benefits you can offer to your client. You might decide that a monetary discount is the last resort. So before that, you can provide value by:
- Free employee coaching and on boarding
- Mentioning your client in a blog post(s) or case study
- Reducing the contract duration or setting a pay-as-you-go option
- Offering a bulk discount (if pricing is elastic)
- Offering a discount for a future purchase
6) Provide a discount but ask for some value in return.
The request to reduce price might come in the form of a concession:
"Give me NN% discount or I will take my business somewhere else."
Some clients may not offer anything in return for the monetary discount. In this situation, you should be prepared to ask for some value in return. For example, you can ask for:
- a referral to another likely customer
- signing up earlier to make the end of the quarter
- agreeing to be used in a case study
The client might offer:
"If you give us a NN% discount, then we will sign earlier before the end of this quarter."
Provide a discount but definitely ask for a favor in return.
7) Ask your client to make the offer. Know when to walk away.
Giving away too many non-monetary and monetary discounts may start hurting your own company. That's why it is important that you set your reservation price beforehand. Don't go below your reservation. Try asking the client about his/her best offer. Most of the time, the starting point will be surprisingly good. Decide when you will walk away.
In some cases, no deal is better than a deal that would hurt your company.
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