In competitive sales situations, the ability to negotiate effectively is more than a skill—it’s a critical tool for ensuring profitability and customer satisfaction. Whether securing deals, resolving conflicts, or navigating complex agreements, the ability of a seller to negotiate effectively determines their success. This article delves into how honing skills can empower your sales team to excel in negotiation situations, preserve margins, and drive business growth.
The Importance of Negotiation Skills
Many professional buyers have been trained in basic negotiation strategies and tactics because, after all, it’s what they do for a living. However, salespeople haven’t always received the equivalent level of training. The result is an uneven playing field where buyers have the upper hand because they use basic tactics that sellers perceive as pressure on them.
What happens when you level the playing field and train sellers in negotiation? Discounts are reduced in frequency and size, and margins are preserved or expanded.
A few years back, we studied two groups of sellers at a regional electrical distributor – one group that took our Negotiation Quotient 1.0 program, and one that didn’t. The group that did not take the training maintained a steady rate of discounting during the measurement period, actually increasing the amount of discounted revenue by 1.1 percent. However, the group that took the training reduced its revenue on discounts by a whopping 16.8 percent during the same time frame.
Negotiation Strategies that Preserve Margins
While negotiation skills aren’t a mysterious dark art, they also aren’t something that typical salespeople are naturally good at without formal training. A lot of salespeople may think they’re good negotiators, but wind up giving in to buyer pressure to get the sale.
The first principle of negotiation that helps sellers maintain ideal price targets is to understand that there is pressure on both parties in a negotiation. Too often, sellers only focus on their own pressures: earning commission, hitting quota, etc. The reality is that buyers have their own pressures as well, which sellers don’t always recognize. Maybe you’re the vendor who most intimately understands the buyer’s use case. Your solution may be more complete than your competitors’, or your company is easier to do business with. Perhaps you’re the only vendor who can get a product delivered in time for a critical project.
When salespeople focus only on their own pressures, they give up significant discounts and their company’s profitability in the process.
Set Good Targets
We all have experienced situations where sellers proactively discount when providing an initial quote, as though they’re expecting a price concern from the buyer. This predictably erodes margin when buyers haggle anyway, further reducing the price from the already-reduced starting point.
It’s critical that salespeople aim high when quoting, within reason of course, so that they leave some room for buyers to negotiate. Even if your product is exactly what the buyer wants, they still will want to get it at the best price they can and feel satisfied that they got a good deal. That’s why they negotiate, and that doesn’t change much regardless of whether the initial quote is slightly discounted or not.
Recognize and Respond to Buyer Tactics
Even the simplest negotiation tactics have helped buyers receive significant discounts and additional value when making a purchase. Your ability to recognize these tactics, and respond accordingly, can help preserve price points and your company’s profitability. Below are some of the most common negotiation tactics and ways that buyers express them.
Example: “You’ll have to do better that.”
Example: “That feature doesn’t matter to us anyway, so we don’t want to be paying for it”
Example: “What?! That’s much more than we’ve ever paid.”
Example: “Your competitor was a lot less than that.”
When sellers can identify these tactics and know how to preserve price points when they are used, it makes a significant difference in a company’s bottom line.
One of the ways that untrained sellers respond to common tactics is by dropping price, and sometimes significantly. Immediately dropping 10, 20 or even 30 percent off is not unusual, and it is why buyers use tactics like these.
It’s important to concede carefully in negotiation situations. First, think what would increase the buyer’s satisfaction. It’s not always just price discounts. Maybe there are additional features, complimentary add-on products, or even higher levels of service that can be offered to increase buyer satisfaction and perception of the value your solution offers.
If you must discount, doing so carefully and slowly broadcasts a limited range of flexibility to the customer. A first price drop of 2.5 percent communicates that there’s not much further you can go. Inversely, a 20 percent drop indicates that the initial price may have been way too high to begin with and you may have flexibility to go down even further.
Navigating Price Negotiations with Confidence
In today’s dynamic business landscape, the ability to negotiate effectively is more crucial than ever. It’s not just about reaching an agreement but about crafting solutions that benefit all parties involved.
Salespeople who aren’t equipped with the skills necessary to preserve price points (and margin) are bound to drop prices when under pressure from buyers who are simply trying to get the best deal they can. That’s why effective negotiation is integral to maintaining margins and fostering long-term business relationships. Invest in developing these crucial skills within your team to navigate the complexities of sales negotiations confidently and successfully.
Explore the Negotiation Quotient training program today to equip your sales team with the skills needed to secure deals while protecting profitability.