Some are discovering that smarter selling can accomplish more. With sharper negotiation skills, sellers can preserve or even increase margins of the sales that they earn in order to make each closing count.
Effective negotiating occurs throughout the selling process. Sellers do this by shaping the customer’s perception of value and working to understand their needs. The result is a mutually beneficial outcome that allows for future business. Here, we look at a few specific negotiating skills that sellers can develop in order to increase the margins of their sales.
Six Negotiation Skills That Increase Margins
“Prime” the Negotiation with Preparation
In any selling environment, the customer is likely to link their impression of the seller with their perceived value of the product or solution. For this reason, the seller must be prepared to illustrate their value by delivering industry-relevant insights.
This approach helps to “prime” the conversation, prompting the customer to see the seller in a positive light. As a result, trust develops at an early stage, creating an environment that’s conducive to successful negotiations.
The reason: trust signals fairness. Research published in Psychology & Marketing echoes this fact, noting that “priming a consideration for fairness, a seller can increase a customer’s satisfaction without sacrificing profit.” A negotiation outcome in which the seller is able to preserve or increase margins requires positivity from the customer. This positivity starts with a sense of fairness.
Understand the Power of the Anchoring Bias
Sellers can build on fairness by recapping common ground. This step also helps lead to the next part of negotiating: making an offer.
The conventional wisdom suggests that one weakens their negotiating position by making the first offer. Science says otherwise. Research from Northwestern University reveals that “there is virtually no research that supports the claim that letting the other party open first is advantageous.” To understand why this is true, we need to look at the anchoring bias.
The seller creates an “anchor” when they make the first offer. This anchor is a number that acts as a center of gravity for all that comes next. In most negotiations, the customer is unlikely to venture wildly from this figure. Some call this “pre-suasion.” The seller is setting boundaries by planting a flag. Being cognizant of the anchoring bias means that the seller can confidently make a complete first offer without timidity or hesitation.
Convert Demands to Needs That Can Be Met
After making the first offer, a seller will encounter resistance in the form of customer demands. Effective sellers convert demands to needs by seeking to understand the underlying “why.” This approach is important because needs (e.g., “I need more flexibility in the payment schedule.”) are much easier to discuss and resolve than demands (e.g., “I can’t pay that much.”).
Sellers can convert demands to needs with questioning. Doing so helps clarify the picture for both sides. The key is to take the time necessary to explore the underpinnings of the customer’s position. Too often, sellers in the heat of a negotiation resort to shrinking the scope of work or make price concessions that negatively affect their margins in order to accommodate customer price demands.
Protect the Value of the Sale with Trading
In some cases, converting a demand to a need is not possible. In these scenarios, sellers can still protect the value of the sale by trading. Effective trading means protecting essentials without unilateral concessions that leave money on the table.
Trading cannot occur in an adversarial setting. In such an environment, a customer, otherwise willing to trade, may resist at the behest of their ego. Findings published in the Harvard Negotiation Law Review “serve to shatter the myth that adversarial bargaining is more effective and less risky than problem-solving.” The author continues, “the research indicates that a negotiator who is assertive and empathetic is perceived as more effective.”
Seeing a negotiation through to a successful end almost always requires some amount of trading. What’s important is that the seller understands the dollar value of everything that they’re trading and comes out with a sale that preserves or increases margins.
Understand the Difference Between a Commitment and a Close
Reaching the maximum outcome means first gaining a commitment that precedes the close. To reach a close, a seller must first earn the customer’s commitment by reaching an agreement on the terms and scope of the sale. This step provides the necessary momentum for winning the sale. Occasionally, however, unresolved points slow progress. In these cases, make the sticking points contingencies and move towards a conceptual buy-in. Provide specific, actionable next steps with clear language. Otherwise, the deal is liable to drift.
This concise language creates a proactive pursuit of the sale, which avoids the exhaustion that sets in with over-negotiation. Reaching a deal is incredibly energy intensive, and everyone has a breaking point. Stop short of that event.
Maintain the Relationship after the Contract
Issues are bound to arise, even after signing the contract. This is when the value of a relationship is most apparent. In fact, research published by MIT Sloan Management Review explains that “formal contracts are often ineffective in taking care of the uncertainties, conflicts, and crises that a business relationship is bound to go through over time.” This same body of research cites trust and confidence as being the most important characteristics for the longevity of a relationship.
By maintaining support after everything is signed, the seller demonstrates that they value more than the financial aspects of the deal. That is, a successful negotiator considers how the outcome of the first sale impacts the likelihood of future business.
Negotiating isn’t a fixed point in time — it’s a continuum. Generating more value through increased margins requires work before, during, and after the signed contract.