A Simple Sales Negotiation Tactic that Works
As a key account manager, you not only need to keep your clients, you need to keep them profitable. To do that, you need sales negotiation skills to convince them to buy more and, when the time comes, to renew. Here's a simple negotiation tactic that will help: make the first offer.
Selling and key account management
Too often, key account managers retreat from sales-focused conversations because it feels manipulative. Like trying to force clients to buy something they don't need.
Besides, the biggest part of a key account managers job is to keep clients happy and loyal.
Which makes them risk-averse. Be on the lookout for any signs of trouble. Don't rock the boat. Keep the client happy.
A sales negotiation is challenging and means difficult conversations. and decisions. All the things key account managers work hard to avoid.
Sales, if it's done right, is about solving problems.
Turns out it's not to sell clients things they don't need. Sales is about convincing them you have the answers they're looking for.
Sales isn't so scary when you think of it like that, right?
What is a sales negotiation?
Selling begins with a buyer who has a problem (even if they don't know it yet) and a seller who believes they have the solution.
Through a series of discussions, each examines the problem and puts forward arguments and counter-arguments on how to solve it.
Along the way, both make compromises until those discussions reach a conclusion:
- The buyer can solve the problem on their own.
- The buyer will get help from a different supplier (i.e. not you) to solve the problem.
- The buyer chooses you to solve the problem with or for them.
I'm an eternal optimist, so let's assume the client chose you.
The sales negotiation process
The most important rule of negotiation is preparation.
Here are the steps to get ready:
- Review open sales opportunities. for (at least) the next 12 months. Include up-sell, cross-sell, renewals and new business or expansions.
- Categorise into stages. I like the SPANCO model, which stands for:
Suspect. A sales opportunity you've identified that has potential.
Prospect. A suspect you've now qualified as a lead.
Approach. You've made contact with the client about the opportunity.
Negotiation. You're in discussions with the client about the opportunity, budgets, terms and conditions.
Close. The sales negotiation has concluded, and you expect a decision
Order. The client says "yes", and signs the contract.
- Group by date. date to see when your busy times will be, and so you don't miss anything. Better yet, create an additional calendar for sales opportunities. Bring forward or extend deadlines to give you enough time and resources to prepare.
- Do your research. Learn about your client and what they want.
- Prepare your offer. Define your value proposition and how will your price reflect it?
- Plan your negotiation strategy. For high stakes deals you can't afford to be reactive. Determine the business outcomes you seek. Then decide what you need to do and who you need to involve to achieve those outcomes.
- Start the conversation. It's time to make the first move and get your offer on the table.
Prepare to negotiate
Learn as much as you can about what your client wants and what's important to them.
- What's your value proposition (as your client sees it)?
- Understand the commercial inputs and be clear on margins and your walk away pricing.
- What's the historical relationship with your client?
- Where do you sit in the spectrum of suppliers? Are you a simple supplier or a trusted partner?
- How easy or difficult is it for your client to find an alternative?
- Are there any gaps in the existing product or service that need addressing?
- Who are your client's decision-makers?
- What is your client's decision-making process?
- What actions do you need the client to take, and by when?
- Consider objections – what kind of complaints or concerns might come up? Are there unresolved issues? How will you respond?
- Do you need the support of internal stakeholders? Who are they, and how much time do you need from them?
- What concessions (besides a discount) might you offer to your client?
- How are you going to present the offer? Are you going to write a detailed proposal or presentation?
One thing is clear, getting ready for sales negotiations takes time.
Don't make the first move until you complete your preparation. Only then will you be in the best position to negotiate. Informed.
Pro-tip. CRMs are designed for data, not project management. I always use a task management tool to plan out everything I need to do. The best part is you can create templates, so it's easy to rinse and repeat next time.
I recommend ClickUp. The marvel of this cloud-based application is that it combines your favourite tools in one platform: Lists, Kanban, Table, Calendar, and mind maps and you can toggle between them.
Make the first move
For every opportunity that crosses your path, there is one universal truth:
Sooner or later, for one reason or another, you must negotiate.
So here's my best advice.
The most straightforward sales negotiation tactic I know is to make the first move.
Psychological research suggests making the first offer gives you a bargaining advantage.
When you start the sales negotiation, you control one end of the negotiating spectrum — either the high or the low price.
This is price anchoring.
- Higher prices make the client focus on the positives.
- Lower prices invite a focus on the downsides.
Imagine you want to buy a home.
- A cheap home makes you think about the renovations it'll need and worry it's a money pit.
- An expensive home makes you think of all the pool parties you'll throw in the summer!
You may worry revealing your anchor price will give away power in the negotiation.
Because there's no such thing as cheap or expensive - it's all relative to the perceived value.
Your goal is to define that value and collect the evidence you need to support your price anchor.
The Misconception: You rationally analyse all factors before making a choice or determining value.
The Truth: Your first perception lingers in your mind, affecting later perceptions and decisions.
David McRaney // You Are Not So Smart
Why you should use price anchors
Another universal truth: No one accepts the introductory offer.
If they do, it was too cheap.
So, leave some room to manoeuvre afterwards.
Don't insult your client with an outrageously high offer. Or offend them with a low-ball offer that's clearly absurd.
Either of these tactics destroys your credibility and damages your relationship. Your client may even lose interest in continuing the sales negotiation altogether.
Open with a reasonable offer in your target price range. Somewhere around where your client's Best Alternative to a Negotiated Agreement (BATNA) is.
The closer you are to what your client will pay improves your chances of a quick close. They won't feel forced into making unnecessary concessions.
- Start low and negotiate up. Your client will want more, but that's OK. For example, start at 10, close at 15, knowing you'd be happy with 20. Your client got a deal, and so did you! This is a good strategy for things like billable hours.
- Start high and negotiate down. Your client will want to pay less but no problem - you can discount your offer because you've left some room to play with. This works best for products with fixed costs. The simplest way to anchor is with a tiered pricing strategy. Offer a low, medium and high package of your core product at different prices.
If you intend to raise prices, don't go beyond 10% without significant evidence to justify the hike.
Weber's Law of Just Noticeable Difference shows after a 10% we sit up and take notice.
Clients use sales negotiation tactics too
Negotiation is a tricky game. So expect your client to exploit some negotiation tactics of their own. Here are a few ways they might respond:
- Reject your offer. If your client says they need a better price, don't react emotionally or defensively. Acknowledge you're not aligned, ask why and what price they're looking for? Resume the negotiation after doing some more research and review your proposal.
- Change the timelines. Despite making the first move, your client may push back on your timetable to close the deal. Ask why the schedule you've suggested won't work and what a reasonable timeline would be.
- Offer an elusive incentive. Your client may hint there's more business they could give if only you'd sweeten the deal. Ask them where this business is and why you haven't got it now? Beware of this strategy. Before you negotiate further, ask them to bring data to back up the claims and lock in commitments in the contract. Don't get burned by empty promises.
- Challenge your numbers. Your client may say you're not competitive. Or that you're making too much margin. Make sure you know what the market - and the competition - are doing. Review your client's pricing history with you. They might be right! Or it may be a tactic to diminish your value and get you to come up with a lower offer.
There's more to the art of negotiation than the few pointers I've outlined here. For further insight check out these great posts:
Don't shy away from sales negotiations. It's an inevitable part of doing business. Sometimes you need to challenge your client for them to change. Make the first move to set the price anchor and control where the negotiation starts.