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Money skills can often be boiled down to the elements of budgeting: controlling your costs through awareness and management. However, there’s one business skill that’s often underrated in terms of its financial impact: negotiation. Negotiation saves your business money.
This action allows you to work toward a lower price for your common expenses, making sure you pay less for the things your business wants or needs. But it also helps you earn more money from your clients, investors, and financiers. You can negotiate almost anything, and if you practice it often enough, you could save your business thousands of dollars in regular expenses—and make thousands more throughout your operations.
Opportunities for Negotiation
So, where are the best opportunities for negotiation? Again, you can hypothetically negotiate anything, but these are some of the most promising areas for financial gain.
Most entrepreneurs think of negotiation primarily as a way to secure more favorable contracts—and it’s a valuable application. When securing a new deal with a client, you’ll likely enter a round of negotiation, debating points like the price, the timeline, and the terms of the deal. You’ll have the opportunity to tilt these elements in your favor, earning more revenue from the same job or at least securing better terms that allow you to operate more efficiently.
There are some recurring bills that won’t have much room for negotiation. For example, you won’t be able to negotiate with the city to have your water bill lowered. But you can adjust your rates for many recurring business expenses, such as the Internet. Threatening to leave a provider for a competitor, citing your history, and offering to extend a long-term contract are all valuable possibilities that can help you lower your bills.
Other Areas to Negotiate
Here are some other ways negotiation saves money for your business:
- Interest rates and loan terms. For example, you can negotiate the interest rates on your credit card payments, or position yourself for more favorable terms for your business line of credit. The rates you get will depend partially on your credit history and business prospects.
- Salaries and benefits. When you hire a new employee, they’ll likely negotiate with you over salary and benefits. This area is tricky. You’ll want to give your employee enough compensation to keep them interested in the job. Yet, starting them at a lower salary can save money.
- Lease agreements. If you’re leasing an office or retail space, you might be surprised how easy it is to negotiate the terms of that lease. With the right positioning, you can almost certainly land a lower price point, and you might get some extra perks out of the agreement while you’re at it. Your success here will be dependent on demand for real estate in the area, but it’s almost always worth pushing for a better deal.
- Insurance rates. For the most part, insurance is a logical, mathematical, and straightforward process. Your rates will depend on the calculated risks your business faces in several areas. However, you may be able to negotiate better rates by making certain concessions or combining policies.
- Anything used. If you’re buying inventory or equipment used, you’ll have tremendous leverage for negotiation. The value of used goods is somewhat subjective. Your seller may be particularly motivated. The extra value of each deal ensures maximum profitability.
Fundamentals for Negotiation Success
Thankfully, the same core skills and tactics can help you become successful in almost any application. Follow these tips to find success:
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- Do your research in advance. One of your most important keys to success is doing your research, long in advance of the actual negotiation. Before walking into your negotiation meeting, you should have a good idea of the market rate for whatever you’re discussing—and data points to prove it. The research will equip you with the knowledge and anchor points necessary to get the right price and will make you seem more confident and knowledgeable in the conversation itself—which should be able to tilt things in your favor.
- Project confidence. Speaking of confidence, the more confidence you’re able to project, the more likely you’ll find success; confidence implies knowledge and conviction, which is hard to overcome. There are many ways to project confidence, including speaking slowly and deliberately, remaining calm, and maintaining good posture throughout the conversation.
- Develop a personal connection. If you can, work to develop a personal connection with the person you’re negotiating with. It may seem like negotiation is a cold, impersonal business tactic, built on logic, but there’s an emotional component to it as well. People will be far more willing to cut a better deal to someone who seems like a friend than a stern, demanding businessperson out for a profit. Make friendly conversation and use charm to establish a bond before you get too far in negotiations.
Other Negotiation Tactics
Beyond the initial strategy, consider these negotiation tactics to get what you want:
- Give yourself room. You’ve likely heard this one before; make sure you start the negotiation at a higher or lower price than you actually For example if you want to make $5,000 off of a contract, ask for $6,500. If you want to buy a used computer for $500, start at $350. This gives you a chance to beat your goals outright and gives you wiggle room to work with if and when your opposing party starts to negotiate.
- Disclose your goals. One of the easiest ways to gain someone’s trust is to offer transparency early. You can do this by disclosing your goals, and any mitigating circumstances affecting your decision. For example, you might tell a client how eager you are to land a deal or admit that your budget is lower than you’d like. This may seem like it makes your position weaker since it volunteers information that could be kept secret, but it makes you seem more personal and approachable, so it’s often worth the tradeoff.
- Ask for (and offer) intangibles. You won’t always be able to get the price you want or even budge the price through negotiation. Even so, you’ll have a chance to tip the scales in your favor. Instead of asking for price movement, ask for “intangible” items, such as an option to lower your interest rate in the future, a bonus for signing the contract, or an extension on the terms of the deal.
Important Negotiation Actions
Yet, there is even more that’s possible when it comes to ensuring you negotiate in a way that saves your money business like these actions:
- Always trade; never give things away. During the course of negotiation, the opposing party will inevitably ask you to make concessions, such as dropping the price or including an extra benefit. Avoid giving these things away without asking for something in return. For example, if your new hire wants a $1,500 credit to help with moving expenses, consider offering it—contingent on the employee starting a week earlier than originally intended.
- Tailor your strategies to the individual. Sometimes, your client will request a negotiation. Other times, you’ll be the one initiating it. Sometimes, you’ll be dealing with a conservative, stubborn CEO. Other times, you’ll be dealing with a flexible, young entrepreneur. Get to know your audience as well as you can, and tweak your strategies accordingly. The same tricks won’t work on every negotiator.
- Avoid timeline pressure. It’s tempting to introduce a deadline to pressure a close to the deal. For example, if you’re having a hard time settling on a price, you might claim you’ll walk away if the deal isn’t closed within a week. However, it’s usually better to allow more flexibility; undue timeline pressure can make your opposing party more hostile, or make them more likely to walk if and when they encounter an unfavorable condition.
Negotiation is All Business
Finally, try not to take things personally. You’ll encounter all types of people in your business negotiations. These include those who drive a hard bargain and make no concessions.
When this happens, it’s easy to get offended or even angry at the person you’re working with. Remember, negotiation isn’t personal. If the conditions become too stressful or if the terms of the deal become unfavorable, it’s better to walk away calmly.
Final Thoughts on the Art of Negotiating
Try not to be intimidated at the thought of negotiation even if you’re new to the strategy. Only through experience will you develop the confidence, positioning, and interactive skills necessary to land better deals. If you’re under-experienced in this field, consider using hypothetical scenarios and engagements with people you know. These training exercises perfect your skills. Then, put them to work every chance you get.