Negotiating Tips April 09, 2012

Don't Negotiate in Funny Money

Those who own gambling casinos in Las Vegas know that customers place a $100 bet using a plastic chip faster than they would if they had to place a $100 bill on the gambling table. It is easier to sell a $60,000 car if you tell the buyer it’s only $699 a month...

Those who own gambling casinos in Las Vegas know that customers place a $100 bet using a plastic chip faster than they would if they had to place a $100 bill on the gambling table. It is easier to sell a $60,000 car if you tell the buyer it’s only $699 a month. Funny money is money that doesn’t seem real, but it is.

Good negotiators think about real money.

For example, the buyer says, “You are asking for 20 cents a pound. We’ll give you the order right now at 19 cents. It’s only a penny.”

The smart seller should then think, “With 2 million pounds involved, that comes to a $20,000 concession. Too much. I’m going to hold at 19.8 or 19.7 cents.”

You are wise to train yourself to think of real money whenever you transact business. Only then can you decide if you want the talks to revolve around abstractions such as percentage rates, cost per pound, price per unit, employee-hours, overhead rates, or labor rates per hour. If the other side wants to negotiate in terms of funny money, that’s their problem, not yours.

People who deal in funny money without converting it to real money usually make much larger concessions than they should.

Funny money can cost you a lot.
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