We had won a big deal for a Skylink maintenance project. The order was received. The deal was sealed.
But I missed a fundamental step in my core negotiating strategy, and it cost me a lot of money…
Step 1: Gather the right information
My counterpart was a good client of ours. One of our top 10 at that time. The negotiation was rooted in Indian culture where hard negotiating is the norm. Stalling, pressuring, and gentle threats are typical tactics.
In any negotiation, it’s important you know as much as possible about your counterpart and the deal you’re working…
What is the context of the deal?
Is there any info you need?
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What are their values?
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What is their personality style?
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What are their hot buttons (pain is a better motivator than pleasure)?
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Where are the decision makers?
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What are some ways to structure a winning deal?
I did research. I studied.
But what I neglected was the product they were buying. I had quoted an alternate number. The client had ordered the alternate number. I didn’t make 100% sure they were certain this was acceptable. My counterpart didn’t check with the ultimate decision-makers, and neither did I.
I just took the order. So stupid! This creates no value for the client.
Midway through the order, about two months in, the client called me, panicked that he had ordered the wrong material.
This project was already in production and had $300,000 of cash tied into the project.
[my trophy for a poor negotiating strategy]
By all estimates, I lost a $600,000 order, I ate $200,000 worth of material costs, and I caused the client pain.
It took two years to resolve!
All by not focusing on the plan.
Step 1 of your core negotiation strategy, do your research and know your counterpart and everyone involved in the decision process.
Once you have that…
Step 2: Establish your Least Acceptable Offer (LAO), Best Possible Outcome (BPO), and your Best Alternative To A Negotiated Agreement (BATNA or Plan B)
Now the fun begins.
If you start throwing out numbers, you’ll look like an idiot. An ill-prepared amateur.
Based on the research you did in step 1, you’ll now establish hard numbers to keep you focused on the result …a win/win deal.
Best Possible Outcome (BPO)
Now is where you’ll write down your best possible option/s.
Scenario 1:
Let’s say I have a sales deal that’s worth $100,000, and I need to turn a 20% profit. My 20% target is $105,000.
My BPO for this deal is $105,000. Depending on my step 1 research and my knowledge on the market, supply and demand, and my counterpart, I may start at $110,000 as I know they’re going to take nibbles (a future post).
Scenario 2:
I need to buy an aircraft engine. Based on my research and competitive analysis the engine is worth $350,000. I have to be realistic in my offer and based on supply and demand and my other options; a fair offer would be $325,000.
So, being a little aggressive, my BPO is $300,000. That’s where I’m going to start.
Least Acceptable Offer (LAO)
Your LAO is the minimum you’re willing to accept. It’s your walk away point.
For scenario 1, my LAO may be a 10% margin. For scenario 2, my LAO may be $355,000.
It all depends on the work you do in step 1. Don’t arbitrarily establish an LAO without knowing the reason you chose the number.
Best Alternative To A Negotiated Agreement (BATNA or Plan B)
Your plan B is your alternative option.
For buyers, it could be a lower price option (Be careful: lower prices could mean higher long-term costs. Do your research!). Or for a seller, it could be your walk away point.
The critical point here is if you don’t have a Plan B you won’t know where to stop. You won’t know where success and failure starts and ends. You’ll keep going, and going, and going.
And those are terrible negotiations.
But before you make your offer…
Step 3: Complete Your Negotiation Strategy Outline and Seek Advice
Now that you have step 1 and 2 complete, make sure it’s written out on a piece of paper. Write it down. Think it through. Get in the minds of your counterpart/s.
What’s in their best interest?
Knowing that you’ll be able to motivate them to a win/win conclusion.
Establish your LAO, BPO, and BATNA. Know your options. Get clear on your numbers. Get clear on counter tactics (i.e., if you reduce the price, take away a costly service portion of the deal).
Next review the deal with your internal team, your spouse, your advisors, or whoever is important to you.
Get their viewpoints.
Then…
Review the deal and role-play.
I’m a big fan of roleplaying. It gets you in the right mindset. It gets you comfortable with uncomfortable situations. It makes you confident in your material.
The best negotiation tactics start with having a detailed Core Negotiation Strategy. Without it, you’re going in blind.
Until next post in this negotiation series, be great,
Nate Anglin
RELATED POST: Are You ROTTING Away Today?
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