Business Negotiation August 20, 2013

The Salami Slice Approach

I like salami, especially the hard Italian variety that comes in a roll. When I buy it, my plan is to have it around for a week. I promise myself I’ll cut a slice or two as a treat from time to time. The trouble is that it never happens that way. What happens is that I cut myself a slice as soon as I get home from the store. Then another slice and then another. Before the day passes there is no more salami.

That’s the way the Salami Tactic works in negotiation. A friend of mine is a big contractor. His negotiations are complex with lots of issues in contention. He would like to win them all at one time if he could, but the opposing negotiator rarely lets that happen. They don’t concede the whole salami in one piece.

What my friend has learned is that most people in negotiation don’t mind giving small concessions, a slice of this issue and a slice of that issue. They don’t mind being flexible to keep the talks moving along. So what he does is try to get the whole salami, or most of it, slice by slice. A little here, a little there. With persistence he is able to win a nice chunk of the salami.

As a large contractor he deals with many subcontractors for such services as framing, plumbing and electrical work. In addition to obtaining at least three or four bids on every contract, he demands cost breakdowns from each bidder. Because competition is fierce, he usually gets good bids and detailed cost breakdowns. After the prices arrive, my friend negotiates with the low bidder for a still lower price using the salami approach.

Say the bidder comes in very low at $581,900. The contractor, happy with the bid, has decided to use the salami technique to win further concessions. He is trying to get a mere 2 percent slice of salami on every element of cost. The contractor goes through the bid and takes little salami slices of 2 percent from each of the subcontractor’s cost elements: estimated labor hours, labor rate, material cost, consulting cost, administrative and profit. Each slice in itself is quite small in contrast to the seller’s bid of $581,900. But the small slices add up to a $28,872 saving, almost 5 percent. $28,872 buys a lot of salami.