Top 10 Negotiation Hacks To Protect Price & Preserve Margin

Complexity and commoditization run rampant. There's an entire library of congress of books on this subject so I thought I'd list for you some practical, real-world life-hacks and techniques that actually work. You're going to have to completely differentiate your offering and get into deals early to knock out the competitors. Ultimately, savvy buyers will still bring in all your competitors even during the denouement (climax) of the deal so you have to be ready to have an edge to box them out.

First, David Brock of Partners in Excellence weighs in:

Tony, you've covered a huge amount. Here are some additional/supplementary thoughts: 

1. Too often, sales people work on negotiation positioning, protecting pricing or margin as the move into the closing stages of a deal. This is far too late. You need to begin establishing your positioning from your very first qualification meetings. 
2. It's impossible to preserve pricing and margin if your solution has negligible differentiation meaningful differentiation from the alternatives. There are a few key words here. The first is meaningful--it has to be critical and important to the customer. Just having more features, functions, better service, better quality, etc is meaningless unless the customer cares. If you aren't differentiated--if you haven't provided leadership in driving the customer to think what you have is the most important, you will never be able to defend price/margin. 
3. The customer has to find their current state is absolutely unacceptable. Doing nothing is not an alternative. Then combined with 1 and 2, having a strong business case positions you strongly to avoid discounting. 
4. Finally, making sure the customer understands the context. If arguing for a percent or two prevents them from Millions in profitability improvement, remind them the silliness of wasting time to achieve these goals.

At the very least, you want to engineer your win into their process, by establishing the requirements and exerting positive control over the deal at every step. By being the decision maker's 'emotional favorite' going in and co-creating the most compelling business case for mutual value creation and the New ROI, you've helped them advocate for your solution and build enough of a consensus internally to secure the win. Let's deconstruct a rather elaborate topic into 10 central hacks:

  1. Anchoring & Threshold Gating – Anchoring the sale is both procedural and psychological and this fits right in with threshold gating. You need to set a minimum threshold for the deals you'll take on. Allowing for endless 'Seemore Sydrome' meetings, pilots and proof of concepts (POCs) could sink you. Many get romanced by the notion of 'land and expand' but $250K up front is an effective enterprise pilot, not zero or $5K. You can land and expand only if the client has enough skin in the game. We know you will with infrastructure costs and the investment you'll be making to ensure your customer is successful with your solution. Psychological anchoring is simply the concept of painting the larger vision of what a strategic partnership could look like economically and solution-wise. If you offer that full vision at $200K, they're going to look to get involved for 1/10th of that. If you factually state your typical annual deal size is $1MM, they're much more likely to transact with you in the realm of an acceptable enterprise size engagement. These are two concepts that are thousands of years old but they are alive and well in complex B2B selling so utilize them respectfully, artfully and with integrity. Be transparent with your pricing model. Be willing to 'fire' high maintenance tire kickers and set the tone for the partnership up-front. You will not scare off a great customer as exclusivity drives sales. Top companies want the best solution and are willing to invest if the ROI is there. They're not necessarily looking for a free trial. They seek Cialdini's social proof, case studies, reference clients they can call for 'proof of life', vis-a-vis: true testimonials. Many ask for retention information in RFPs because they're clamoring for stability in an overcrowded market place where many companies are not looking for the 100 year run; they're notoriously seeking a three year exit and vulture capitalists are pushing for that. Maximize customer value over shareholder value and build a relationship on the basis of longevity and trust.

2. Bucketing – The bucket technique works. This concept comes out of systems as disparate as charitable giving engines to models of lease tiers for European luxury cars whose finance departments operate similar to banks. I realize some pricing analysts will be reading this as I'm networked with you, so I'd love your thoughts in this sphere. Essentially, when presented with three options, human nature is to select the middle one. An even larger overarching concept, as you look to build out your pricing grid or SaaS tiers – you need to present your pricing in such a way as to land customers in the stratification you intend. Remember, this is in their interest as well as yours. To grossly oversimplify, if you're looking to sell deals at $500K, create tiers of $250K, $500K and $1MM. The Challenger Sale talked about creating constructive tension and discussing price early as two of the most powerful things that Challengers did naturally. My take on this is that it displays transparency and confidence. Cut through the placation and hot air. Get down to brass tacks. Pricing conversations must be delivered with finesse. If you present the matter too early, you can risk killing the deal. Invariably, if you are interacting at the most senior level in an organization, they will move toward the pricing discussion with force and great intensity rapidly. That's when being prepared with a bucket like, "Typically our engagements fall into the realm of $250K for a pilot and $500K to $1MM on an annual basis. We need to fully scope the project to understand the unit economics at play [professional services] or we need to understand exactly what modules you'll need [SaaS]. Which of these numbers speaks to you?" – I want to give some credit to Bryan Kreuzberger, the originator of Quad Emailing for some of the phrasing and verbiage here. You don't want to alienate buyers with this line of reasoning. If well timed and especially face-to-face, you're going to rapidly accelerate your ability to find out the available budget, the comfort level and merge this with a query into "success criteria" so as to understand what precise value they're looking to derive from their investment and how they intend to measure it. Maybe you can measure it together...

3. Elasticity of Demand: Suite of Solutions vs. Single Commodity –It's a mistake to sell single solutions into the enterprise even if you sell one thing. Let me explain. A single solution looks and smells like a commodity and so you'll be commoditized. Period. Point solution providers can pull this off because they've either gone Google and vastly undercut pricing to 'democratize' the industry, they've got way less overhead running fully lean in the cloud with limited Op-ex vs. Cap-ex, or they've figured out a more transactional way of offering one feature of a large enterprise solution to those 'looking for a deal.' Nobody got fired for buying IBM so over-simplification is actually an Achilles heal. Companies with a healthy bottom line are not looking for the 'low cost, loss leader.' If you're the incumbent, the argument is the little guy has vastly fewer resources and R&D to invest back into its suite of solutions that allows an end-to-end holistic approach. Often the incumbent is also vastly more secure with understanding the customer's business processes and people, so make sure you check that box if it's a competitive advantage. If you are David going against Goliath, perhaps you can provide a level of concierge service or place this dream client in Beta and that's very attractive to them to be this hands-on. Here is a Case Study.Perhaps they can even use both solutions at once, 'truly land and expand,' to multiply the effectiveness of what they're already using. Many amazing point solutions scale and providing a suite of solutions creates a situation of 'elasticity of demand.' You can also allow for consulting, setup and management fees which are standard practice and act as a mechanism to preserve margin.

4. Value Focus - We're all trying to sell value but value is not enough. Senior executives purchase based on delivering outcomes and managing risk. Leverage risk as a weapon and provide unexpected value by focusing on mutual collaboration and value creation over the life of the proposed partnership. Span your attention out and discuss what the potential growth curve looks like in the first, second and third year and some of the benchmarks other clients in a similar vertical are achieving at these levels. 'Just sell value' is a hard pill to swallow as this is the mantra in all the competitive companies for most sales managers. Sales executives must teach customers with new insight and provocative compelling business insight they've gleaned via industry expertise.

In a previous post, I highlight the physics idea that Elon Musk utilizes called First Principles thinking where you reduce a system down into its fundamental parts [Ferris Deconstruction: Deconstruct, Selection, Sequencing, and Stakes] and then rebuild it in your mind or a brainstorm... from scratch. The battle royale is to be won with disruptive insight. Ideation is a big deal and precedes Challenger. The strategies and tactics will matter little if there's not a unique and compelling reason to buy from you. Ultimately, separate yourself from vendors and present instead as a partner and trusted advisor. Do this by sitting on the same side of the negotiating table and add so much value from inception that they: a) feel they'd pay you $500 just for the initial consultation and b) they feel they drove a huge bargain even investing $1MM because you're going to make or save them millions net net. Pretty simple but this gets incredibly muddied with thousands of books that tell you WHAT the outcome is without a blueprint of how to get there. I recommend any book or blog by Mark Hunter for a deep dive into these subjects of high profit selling.

5. Pre-Trigger Penetration - Craig Elias & Tibor Shanto extoll this revolutionary concept of 'first in'. Frankly, I believe that InsideView, Gagein, Avention and even components of LinkedIn Sales Navigator stem from seeds of ideas in the concepts of Trigger Event Selling in the clairvoyant book -Shift!. Pick this one up and start to study the 3 main trigger events: a) changes and transitions, b) awareness, and c) bad supplier. You'll need to get upstream pre-Challenger via a slew of techniques I've coined strategic social selling to do this effectively. If you're 'first in' you can set the tone, engineer in the requirements and continuously educate the customer. I've often stated, 'look, even if you don't choose our solution, I'm going to do everything that I can to help you to make the most educated decision.' Big enterprise sales teams talk about 'swagger' and how 'the swagger breeds.' It's this big machismo Glengarry Glen Ross target practice devaluing the industry into something less human.

To de-risk the head-to-head Running of The Bulls at Pamplona strategy with the competition, I would advocate listening and hunting for trigger events so that you can introduce yourself, provide value and edutain before the prospect even knows they need to look. You interject a disruptive way to execute on a major initiative already in play and bingo – major sale.

6. Offer Limited Concessions - Hard negotiating is about making limited concessions. If they ask for a discount, Mark Hunter will tell you to always hold firm on price but negotiation experts might advocate a very minor concession over a holdout time period. The bigger concessions you make earlier, the less chance you get to an effective win-win close. And don't forget, by the time you get to procurement they're going to ask, "Why is your solution 4X more expensive than the other 3 vendors I use for this offshore?" Or, 'Why's the license fee astronomical compared to these other three [point solutions] who are willing to take us on in a free trial?" That's when you may need to place a call to your executive sponsor in the account if you're getting blocked in procurement and shaved down. I've had situations where I reached an absolute stalemate with the purchasing team after daily half hour calls for weeks on end. Complete Groundhog Day! Be confident in your pricing model and stand firm. 'Friends and family' discounts are a slippery slope and training your customers to wait until New Year's Eve until your leadership is desperate to close, is a bad idea and sub-optimal business practice that pads numbers, to say the least.

7. Don't Be Afraid to Walk Away - Hit pause on the negotiation and grab dinner. Be willing to walk away from the negotiation table and even the entire deal if they've got you over a barrel with an offensive counter-offer. Call their bluff of posturing over you for pennies on the dollar. The power-base knows your price and knows the market. You're not alone in this deal. It's quite common they're going to find 3 other suppliers just to run a reverse auction and wave the lowest pricing schema in your face as a bargaining chip. Top executives drive a truly hard bargain. Don't you? I'm stunned when haggling breaks out but I'm never shocked when I get low-balled. Enterprise tiers are non-negotiables and when you're trying to grow revenue scalably and predictably, you cannot stoop to slashing pricing. The margin and even the entire business can suffer. If somebody keeps low-balling you and puffs their chest out like a peacocking lion, hold firm and take the high road. If they keep going there, be willing to walk out of the casino. Realize that a) They're doing this because they want your solution that bad and you've already clearly differentiated and won the value war, and b) It's very much posturing. You need to apply the principle of non-hunger, set the tone that you have many enterprise deals in the queue and batten down the hatches until this perfect storm blows over. Motivational speaker Tony Gaskins says "You teach people how to treat you by what you allow, what you stop, and what you reinforce."

This applies 100% to customers. Walking away from procurement for a while (while still remaining engaged wit the power base) could be the last strategic card to play and a better strategy than dropping price to lower a deal. You begin a relationship in weakness or strength – that choice is always yours. If you train the client they can simply apply pressure to your jugular at any point to get their way you'll erode any virtuous cycle to up-spiral a relationship. Deals that are won at the end of quarter with price drops are the same ones that renew with the customer shopping you to every competitor under the sun and coming back to demand 'lower fees' or else they're going to the competition. Even if you are the most innovative, market leader and integral to their core business! You could be the engine of their entire growth plan and you've still opened yourself up to the susceptibility of hostile negotiations. What's uncanny about this, is that I've seen the same customer treat one vendor like gold that didn't buckle on price and another like dirt who did. Think hard on that point.

8. ROI Calculation & Co-Creation [Drive Revenue] – Many methodologies speak to building a value hypothesis that's both qualitative and quantitative [Jeff Thull] and co-creating to prove it out with the customer. Some cautions here: Calculating a 3,000 percent increase is disingenuous. Pragmatism and realism are essential when communicating with CFOs and CIOs. Don't attempt to apply lipstick to a pig or present a pie in the sky 'push-button' fix even if your solution is completely transformational. We all know the devil's in the details and our success will rise and fall on delivery - the execution phase - when the rubber meets the rode and we look to bring about lasting change. There's an entire sector of consultants who can help with building out ROI Calculators. I think benchmarking by polling or surveying existing customer data is a very effective strategy. 'On average, our customers are realizing anywhere from a 3 to 5% revenue lift.' Remember that metrics that matter vary wildly so giving some study into the one key metric powering the buyer's purchasing decision and how you can influence it, is a worthwhile endeavor indeed.

9. Engineer in the Requirements – Build a document which prepares a client for RFP. Even provide them with a template RFP to make their job easier... I've done it with incredible results selling to government. Make sure to include all the questions that help them to assess how your solution better fits their requirements. Chances are, most competitors will not have the forethought and preparation to build a RFP checklist to share with clients. But if they have one too it can become a situation of a requirements stand off. Too many bells, whistles and features can work against you, presenting fear of scope or feature creep. It can interject implementation risk unnecessarily. Compatibility, extensibility and interoperability are ubiquitous buzz words but at the end of the day, are your people committed to getting the solution live and doing whatever it takes to make the client successful.

10. Venn Diagrams, Opportunity & Relative Costs [Create Cost Efficiency] – What's the impact of not making the change? What's the sunk costs of just holding the dozen meetings you already have? [Government] If there are four main factors that a decision can be made on, what's the Venn Diagram of the most important two? Map that out on a white board. It's often impossible to reconcile all the demands a customer is looking for. If they're painting a utopian reality, we know for a fact going in that no vendor is going to be able to satisfy them. At this point, it's worth building out an opportunity cost calculation or presenting a diagram that highlights these paradoxes and contradictory forces. Here's a humorous one to trump up the point!

And finally, an amusing story about competition in enterprise deals to share with you which will highlight just the level of psychological warfare actually involved in all of this which I'm sure many of you are far too intimately familiar with already... There was a point solution that presented itself as more advanced and sophisticated as the competitor. They had invested nowhere near the R&D and resources into improving the product and their system was legendary for going down at peak times. But every prospect that called in was given this song and dance: 'We're the leading enterprise solution. We're exclusive. Let us know when you're ready to make a real investment." Incredibly with a product that was nowhere near as good as other direct competitors, they cornered the enterprise market with the power of exclusivity alone. That's a hard argument to punch a hole into. Beware of this tactic if you are the leader or disrupting one. 'Oh, and call me back when you're ready to get into the elite version...'

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Main Image Photo by: U.S. Army