Negotiating in Life, Business Negotiation October 15, 2009

Wise Negotiations

Sales perspective:

Today’s economy makes deals harder to close and margins tighter. Buyers are tough today. It is never easy to make a sale, but now it is harder than any time in recent years. Now you really have to negotiate.

Buyer’s perspective:

Procurement and supply chain managers are under tremendous demands to reduce costs. A recent study by Purchasing Magazine indicates purchasing professionals today are more focused on cost-reduction strategies than on other issues such as supplier capacity, finances or consolidation of suppliers.

Results show 48% of buyers polled said negotiating lower prices for products and services with their suppliers is their biggest priority right now. Other supplier-facing priorities ranked in order of importance included supplier consolidations (15%), ensuring the financial health of suppliers (14%), getting suppliers more involved with product development (12%) and, lastly, ensuring suppliers have the capacity to ramp up production when the economy recovers (11%).

Cost Savings Example:

Consider this example which illustrates the true business impact of negotiating better pricing from suppliers.

In 2008 ABC Inc. sold $987.4 Million and made a net profit of $81.4 Million, That’s about 8.2% net margin. This means, if an ABC Buyer can save $100,000 by being a better negotiator, this contributes just as much profit as if ABC could increase their total sales revenue by $1,219,512. And in today’s markets most companies are finding it rather difficult to increase sales.

So for ABC Inc. $100,000 in cost savings has the same impact as a $1,219,512 increase in sales.

Negotiating the Deal:

At the same time more organizations are pushing buyers to reduced costs, other organizations are pushing salespeople to increase sales—at higher margins. All this makes for some really tough negotiating.

So, what should salespeople do when negotiating prices with buyers that are on a price cutting mission?

Buyer’s must remain aware, and sometimes need to be reminded, that the cheapest per unit cost can often end up being the most expensive ‘total cost’ decision.

Switch from ‘Price’ to ‘Total-Cost’

Sellers must get buyers engaged in a ‘total-cost’ analysis. And it is in the buyer’s own best interest to do exactly that. This is really the only way a buyer is going to be able to discover, document, and get credit for ‘real cost savings.’ The blending of a buyer’s expertise on what they need, with a seller’s expertise on what is possible, provides a route to true cost savings. Best of all, during this discovery and analysis process, relationships are built which lays the groundwork for future business.

Satisfaction

The outcome of your negotiations must be a mutually agreed upon result that creates a Both-Win atmosphere rather than a one-win atmosphere. Satisfaction of both parties is key, and determines future business opportunities between the parties.