Finally, it is almost done – the contract has been nearly finalised, the last and final offer has been submitted, and either you have been down selected to one, or you are with only one last competitor.
There is only one last negotiation round – and how do you position yourself and your team in order to be successful?
First of all – good preparation is a major contribution, together with the ability to react flexible to surprises. The first step in preparation will be a definition of your desired outcomes of the negotiation – what is the optimum, what is the minimum, and when do you walk away without a deal? Only if you define those positions as clearly as possible, you will be able to come through the negotiation round without harm. This sounds simple and obvious, but nevertheless, it is all too common that the goals are not clear to everyone in the negotiation team. Once you have the basic goals and positions clear, in a next step you need to define the trades you are willing to make – what do you want as compensation of a movement from your negotiation position towards your customers. Define this for each and every critical negotiation point where you can expect that the customer will ask for you to move. The price for such a move (either financial impact or other like a change in the SLA’s or an increase in scope / revenue) needs to be adequate to the importance of the negotiation point, and sometimes, you may want to define a price that is so high that you can be sure that the customer will not accept it.
Now that you have defined your desired outcomes and possibles trades, it is time to look at the tactic for the meeting(s) themselves. Unlike selling used cars, always remember that you will have to work with the customer for the coming years, and that you want to establish a strategic relationship based on trust and respect for each other. This means that every outcome of the negotiation wich leaves one party as a clear “loser” and the other one as a “winner” has the potential to ruin your customer relation in the long term. Therefore it is important that the outcome is seen as a fair agreement from both sides which will last for years, and that the negotiation itself is perceived as open and transparent.
Nevertheless, there are some simple and important tactics you might need:
- The bad boss (the use of escalations)
- A signal that shows that you are also willing to go away (showing that you want this deal, but that you don’t have to accept all bad conditions)
- The option to move parts of the negotiations to a later time after the start of the project.
The bad boss is a classic in negotiations. The key negotiator (usually the account manager) is the nice guy, because he is the advocate of the customer, and wants to work long term with them. Therefore he will be inclined to move towards the customer position. In such a case, he needs to bring up his bad boss – telling the customer that he cannot do the decision on his own (or stronger that this has already been ruled out by his boss) and that therefore the customer needs to escalate this point to his boss. This tactic will allow to discuss all points to be negotiated and to park those points where you cannot move immediately. Then, in the next step of the escalation, your “bad boss” has to enter the negotiation emphasising that you actually have done already too much to move towards the customer and that there is very little room to manoeuvre. If done right, it will allow you to keep at least some of the really important positions. There are two important things to keep in mind – your boss needs to be clear on his role, and he needs to be able to act the bad guy in a convincing way. The other important point is that you also need to have an escalation level above your “bad boss” who can make final concessions to the customer in order to not let the negotiations fail completely on some minor point (unless these are topics where you are willing to walk away from the deal).
Another setup can be that the key negotiator is the deal maker, who will have no active role once the deal is signed. in such a constellation this person can do the “bad guy” part, being tough in the negotiations. Then, the next escalation level should be the “nice” account manager, who can overrule the negotiator when needed. It has the advantage that the negotiator can be tough as he will not have a long term role in the project. This setup can be recommended when the setup on the customer side is similar – usually when the key negotiator on the customer side is from procurement and not from the business department. In most cases, customers will also act in a similar way, with business interested in closing the deal, procurement being the “bad” guys, and the senior management level in a role to find a compromise.
For all negotiations it is important to have a signal that you are willing to walk away from the deal. This is closely related to your ability to say no to a customer. You need to make your positions clear in a way that the customer understands what you are willing to accept, and what not. If the customer gets the understanding that you need this deal so badly that you are willing to accept nearly all conditions imposed by the customer, then you end up in a losing position. Therefore you need to make your position very clear, and also you have to be transparent and consistent about this. This is also an important piece of a win-win strategy. Use the opportunity in the negotiations as early as possible to make those points, so that a customer can understand and adapt. Most customers will honour and understand this approach. The alternative of seeming to agree or to move positions only to come back to a customer with the surprise that you do not adhere to a point that had been agreed upon previously will frustrate your customer and make the overall negotiation more difficult. The level of trust between the parties will definitely take a hit.
Especially in a situation where there are two providers down selected it might be important to be the party that the customer describes as “easy to work with” instead of being “complicated and unclear who decides what” This behaviour will also give customers a good first impression on the collaboration during a project, and therefore all those small little signs will be carefully watched by the customers and might also be a key factor for the final decision on the contract award.
In all negotiations there will be a point where either you or the customer will be inclined to postpone a part of the discussion to a later stage – after start of the project. There are many reasons for this, starting with missing information that will only be found out during the project towards the need to finally start the project and not “waste” more time with the contracting. The key point for the service provider is to figure out if such a postponing will improve the negotiation position or not? In case such a postponing will lead to a change request and related additional revenue, it is ok to postpone. In case it will only lead to scope creep without revenue, the alarms should go off – once scope creeping starts it will be very difficult to stop this and move this into change requests.