Tue 22 Jul 2008
When you bid on a contract, your prospect will often come back and ask for a lower price. Here is a proven strategy to negotiate pricing. The goal is to make quality of service and deliverables the issue, not price.
1. Plan: Know what you can compromise on and what they would have to compromise on.
It's only fair: if you give up something, so should they. But before you offer up anything, know what you can do. Fast negotiators can think on their feet and usually have planned out a strategy to get a better price from you. Make a list of what you can compromise and assign a cost to it. Then, jot down what you would not be able to provide (i.e., what they would give up) as a result.
2. Find out who and what you are up against.
"Have you gotten lower bids from others?"
They will probably say yes, even if they are lying to you just to beat your price down.
Try to get the names of your competitors so you can respond to their level of competency or reputation. Ideally, you should have a solid handle on your competitors before you talk to your prospect so you can respond on the fly.
If you find that they are comparing you to a company with a less-than-stellar reputation, do not put the other firm down. It will make you look bad. Instead, say something like "I would encourage you to do a little due diligence on that company, perhaps do a Google search the terms 'Widget Corp quality' or 'Widget Corp customer service' just to see what you find. You might also do a related search on our company."
Never negotiate against yourself.
Do not say things like a used car salesman: "Where do I have to be to get your business?" The moment they know they have negotiating room, an experienced prospect will take you to the cleaners.
3. Make sure they are comparing comparable deliverables.
"Well, there must be a reason they are pricing it lower so let's make sure we are comparing apples to apples. Usually, if they are priced significantly less, they have to cut corners somewhere. Exactly what are they including line-by-line for the quality of goods/services they proposed?"
Take price off the table. If you are a very experienced consultant with rock solid credentials and your competition will have junior level staff working on the project, make sure your prospect understands the difference in the quality of the deliverables they will get.
Say something like "Well, it seems like there is a pretty good reason they're pricing this project lower: they're going to have less experienced people work on it. You will be getting a completely different experience with us."
You might find that the person negotiating just wants to look good to his boss to show they got the best deal they could. So if it looks like you can land the deal if you just show that you are compromising, leverage the list of compromises you made earlier (see item 1).
If you have to compromise, get something in return for what you give up. Example: "If I reduced the price on this item, would you be able to give me net 15 day terms instead of net 30?" There should always be a "give" for every "take".
4. Know when to walk away.
Sometimes the best decision is to turn away business. In my experience, the people who want to pay the least are the most demanding ones. Rather than ending up with the client from h***, spend your time focusing on another prospect. You might even find that by turning them down, they'll rethink their position and come back to you.
"I'm sorry but we just can't give you BMW quality at a Ford Escort price. If a lower cost is really what you're after, then we're probably not the right company for you. There is always going to be a company that is cheaper. But we pride ourselves on the quality of our work and our reputation depends on it. We just wouldn't be able to provide that level of quality at a lower price."
Try saying some of these phrases to yourself in the mirror. Look like you're believing it - your facial expressions will come across during phone calls. Role play with a colleague, a friend or your spouse. Remember, practice makes perfect.
Tell me about your experiences and negotiation stories, good and bad.