Tuesday, September 29, 2015

Don't Get Caught Naked

A colleague once asked me how much negotiation contingency I have in my deals.

I asked, “What is negotiation contingency?”

“It’s the money set aside for making concessions,” he said. “For example, if a client said they wanted a lower price, how much do you budget for price reductions?”

“Oh,” I replied. “Zero.”

Needless to say, he was quite surprised. “You mean to tell me that you never make a concession on price?”

“No,” I said. “I never make a concession on anything. What I make is an exchange; an exchange of value.”

Many sales people make the mistake of thinking offering discounts or cutting the price is the fastest path to signature. They will rationalize it, saying they are “investing in the relationship.”

But what’s the return on that “investment”? In other words, if a sales person gives a discount on price, they better have gotten something in return. Otherwise, that’s not an investment. That’s giving money away and it’s called being a sucker.

Giving free money to anyone is not good business.  Reducing price without getting something in return is called a “naked concession” and it’s rarely a good thing to be caught naked in any context! Naked concessions signal to the client a lack of respect for one’s own business. They also create a lack of trust, and we need trust to build lasting relationships. How is a client to trust us if we say, “This is our best price” and then reduce the price because “they needed this concession to seal the deal.” Obviously, we were misleading them about our “best price” because we gave them a better one when pressure was applied!

In deal-making, you have to get when you give. Trade value. Work with your team and develop a list of options for the client which will allow you to reduce cost and therefore lower the price. For example, can the client perform a task instead of us to reduce cost? Can we reduce scope? Can we reduce risk? Can we extend time? If we don’t show the client the value we put on our products and services, then the client has little reason to value or respect our products and services.