Negotiating a contract with a big company or government agency can be harder than making the sale and sometimes requires a different approach than negotiating deals with smaller businesses. Don’t let contract negotiations (or the other company’s negotiator) intimidate you! Use these 8 negotiation tips to get a fair deal.
Learning how to negotiate business deals is a skill business owners need to develop. That’s because getting a company to agree to use your products or services may be only half of the challenge.
Once you have convinced them you can do the job they want done, you may still have to negotiate the terms of the deal. And that chore may be more difficult than convincing the company in the first place that they need what you are selling. Conflicts may arise over price, delivery terms, quantities, or even the length of the contract.
Depending on the company with which you’re negotiating, the size of the contract and the negotiator, tactics that might be used may include anything from low balling you on prices, to insulting you, taking weeks to respond to your inquiries or counter-offers on price, or demanding control or rights you don’t want to give up.
How should your small business handle negotiations? What can you do to avoid being taken advantage of by bigger or more aggressive negotiators? Over the years, my small business has successfully negotiated contracts with some of the biggest corporations in the US, as well as smaller companies. We’ve also been a government contractor and subcontractor. Here, based on my own experiences as well as some great advice from attorneys who have helped over the years, are 8 negotiation tips to help you get a fair deal when you negotiate a contract.
- To avoid coming out on the short end of the deal, or losing it altogether, determine in advance exactly what you want out of the deal. How much money do you want? What’s the minimum you could accept and make it profitable? What do others get for similar work? If intellectual property is involved – copyrights, trademarks or patents, which rights, if any are you willing to give up? How long are you willing to license those rights for?
Know all of your costs. Be sure you carefully evaluate all the expenses that will be involved in fulfilling the contract, not only the cost of inventory or goods. Other costs may include, cost of your staff time, transportation (if travel is involved), delivery (for products), customer service, any extra insurance you may need to secure, loans you may need for equipment or meeting payroll. Winning a contract from a big company is only worthwhile if it’s profitable
- When you get an initial offer, look it over carefully. If you are presented with an offer in person, or one is faxed to you while the client is on the phone, don’t be pressured into making any kind of decisions or definitive answers. Tell the client you will have to read the offer carefully and will get back to them.
- Be ready and willing to negotiate. If the customer is a large corporation or a company that regularly buy goods or services through negotiated contracts, the contract you are initially shown is likely to be a boilerplate (ie, standardized) contract, or one written by the company’s attorneys to give them the most favorable terms. Don’t assume that the bigger company won’t make changes. Prices and terms are likely to be negotiable – but only if you negotiate them. The initial price offer may be just that – a first, low price, made in expectations that no matter what price is offered, you’ll try to bargain it up.
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- Carefully look at all the terms, not just the price. There may be some terms included that are unacceptable, and some that you don’t like but which you could live with if you had to. Have your attorney look over the offer and alert you to issues he or she thinks are important, that you may have missed, too. . Then, go back to the client. Go over all the issues you have with the offer, and settle what you can. Focus on the most important issues to you. If the price is too low, try to negotiate the highest price you think the company’s budget will allow. Don’t start near or at your drop dead minimum. Don’t be greedy, but do expect to make a fair profit for your work. And do keep your overall objective in mind.
- When necessary, trade off the less important issues to win concessions on the items that are more important. If you sense tempers are beginning to wear thin (either yours or the customer’s) hand off negotiations to your attorney to distance yourself from the negotiations. (Be sure the attorney knows which issues you insist on and which to trade off so your legal bill doesn’t get run up unnecessarily.)
- While all of this is going on, stay in touch with any people in the company you will actually be interacting with after the contract is settled. If they recommended you, they have a strong interest in seeing your contract settled and whether they admit to it or not, are likely to be doing what they can behind the scenes to speed things along.
- Finally, be prepared to walk away if the other side insists on terms or conditions that won’t help you reach your goal, or that could be a major drain on your time, staff productivity and/or business income.
Disclaimer: The content on this page is for informational purposes only, and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.