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Pricing Negotiations: The Fallacy of Your Compensation

· negotiations,forecasting,discounting

You’re walking alone on a path in a forest preserve. Well, actually, you’re walking your dog...so you’re not technically alone. While he is doing his business, you happen to notice a stone with something sticking out under it. Looks like the corner of a piece of paper. 

You kick over the stone, and there sits a $20 bill.

After processing the virtuous decision of what to do with the $20, you start to think, “what if there are others? What stones have I missed?” You start to retrace your steps, looking for stones both behind you, and along the rest of the path.

The walk is now taking much more time than you had planned, but what if there’s a big payoff? I mean, if there’s free money hiding under stones, you should look for and under all of them, right?

You’re in a pricing negotiation. You have proposed a $50,000 contract, paid up-front with Net 30 payment terms, based on a 2-year commitment to the solution.

The client is walking their deal along the path, and there’s a little free money poking out from under a rock. It’s in the form of you telling the client,

“Hey, if you’re able to get this done by the end of May, we’ll knock 5% off.” 

As a buyer I start to think, “While I’m not sure I can keep that $2,500 (i.e., whether I can get this contract done in time), I wonder if there’s free stuff hiding anywhere else!”

The buyer states, “We’re going to need to pay monthly.”

You think, “that doesn’t affect how I get paid, and we give on that one all the time. Okey dokey!”

The buyer is now sure there are other prizes sitting under other stones. The charted path is sprinkled with hidden rewards. All I have to do is look under every rock...

You don't get paid differently whether a client pays annually or monthly? Your company doesn't care? Then either propose it as monthly, or start caring. Because now it just started to affect how you get paid, because just by proactively looking under stones, the client just found another free prize.

How about a bigger discount?

How about NET60 payment terms?

“Oh, sorry, I’m not going to be able to get this done in May, but I’m sure you’ll hold the price.”

“Oh, sorry, I’m not going to be able to commit to as much product, but I’m sure you’ll hold the volume discount.”

The second you give away anything for free, you’ve driven the buyer to search under stones just like you would in a forest where you just found cash under a stone. Every. Stone. Whether you get paid for it or not. Whether your company really cares about it or not. Anything valuable to a client given away for free that isn’t reflected in the proposal is a $20 hiding under a rock.

Deliver a proposal that is based on a structure:

  • The $50k? It's based on the specific configuration of the solution they require. If the solution changes, so does the price. 
  • The $50k is also based on the payment terms, which are annual up-front and NET30. If they need to change the way they pay, something else will need to change as well.
  • The $50k is also based on the 2-year commitment. If they need to change the commitment length, something else will need to change to reflect that.
  • If you want that $50k to come down, the opposite is true in each category. Pay faster. Commit longer. Help us forecast. 

Stop thinking about the direct line to compensation for your “gives” in a negotiation, because whether or not you get paid specifically for an ask is irrelevant. 

The second you give, your compensation will be impacted; by the downstream impact of the give on the buyer’s behavior.

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By the way, I teach a pretty popular program on negotiations - grab your sales leader and give me a shout. I'd love to be a resource for you and your team.

And the pictures above? I took both of them...the "free boat" picture I came across while walking my dog.

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