Many entrepreneurs struggle with negotiating a great outcome for their business when doing their first few sales. A classic trap to fall into, is believing that giving a customer a discount early in the sale will help them to win the deal. Nothing could be further from the truth.
When you give a customer a big discount at the start of the sales cycle, you are simply defining your opening position to be the Original Price – the Discount you give away. They will not value what you give them if it costs them nothing to get it (what costs nothing is worth nothing).
You: “My solution normally costs $5,000 but I’ll give it to you for $3500.”
The customer hears: “My solution costs $3,500.”
The result: You gave away $1,500 and you got nothing for it.
A rule of thumb
A good negotiation will finish half way between your opening position and the customer’s opening position. Your opening position should be justified by your value proposition, which has defined the outcome of value you will deliver in return for the amount you are asking for. If you start low, you will finish low. Always start as high as your value proposition can justify.
It is fairly easy to put a cost and a value on discount. To provide your customer with a $1 discount, delivers $1 of value to the customer and costs you $1.
The art of a great negotiation is to find all the things you can give away during your negotiation which cost you less than $1 to deliver each $1 of value to the customer.
- Delivering my solution in 7 days instead of 14 days might cost me $200 to rush the delivery, but allow you to generate $100 per day for the additional 7 days. I’ve delivered $700 of value for a cost of $200.
- Tweeting my 1,000 followers a link to your store opening might cost me 5 minutes of my time, but deliver $500 of marketing value to you.
To make this work, make a list of all the possible things you could give away during the negotiation.
- Think outside the box and think of everything you can: payment terms, marketing, delivery times, public references, customer introductions, early access to new products, and priority access to stock, etc.
- For every single item, calculate the cost for you to give it away and the value the customer will receive from it.
- Sort the list with the lowest cost things that will deliver the most value at the top.
Some things are will be difficult to place a value on, but you MUST find a way to place both a cost and a value on everything. During the negotiation, you will need to justify the value of each item, so be ready to do so.
Once you have placed a value on everything you have to give away and everything you want, make sure you follow this.
If you value everything in dollar terms and give away anything you can that costs less than giving discount, you’ll come out in a much better negotiation position.