Please enjoy this blog post written by Norman Ling from Spreadsheet Productions. He currently works in the area of healthcare strategic sourcing, which involves negotiating business agreements on a regular basis. He reached out to me after reading my blog post Are You Afraid To Negotiate? because he wanted to talk about negotiating to my readers and help all of you even more, especially since he is a professional negotiator!
Recently, I was in the market for a new home. I have been renting for years, but realized that it was time for me to buy my own place. I moved away from the San Francisco Bay Area to an area that had much more affordable homes.
In fact, I calculated that my mortgage and HOA fees for a condo would actually be much cheaper than renting an apartment in a comparable area. Not only that, I would be building equity.
With all that in mind, I was ready to go condo shopping and negotiate my way into a good deal. I had given the required 60-day notice to my leasing company that I would be leaving, so I knew that I had to find a place within that period or risk either being homeless or pay an exorbitant amount to stay another month. My day job involves negotiating with healthcare manufacturers for products and services, so I figured that I could apply a lot of the skills from my day job over to my condo shopping.
My goal was to get a good deal in the fastest amount of time possible.
The first thing I did was throw all the condos I had found online that I was interested in onto a spreadsheet, along with pricing, square footage, and other details. I would use this spreadsheet as a starting point to figure out which homes to look at before engaging a real estate agent. This list would also provide me options and the power to walk away if I didn’t feel that I was getting a fair deal.
Once I determined the condos that I was interested in, I visited each unit with my real estate agent to get more details. I tried to find out as much about the other sellers as possible.
- How long has the listing been up?
- Did a previous deal fall through?
- Did they have any timelines they were working against?
These were all questions that I had asked to get a better feel for the seller’s circumstances and how amenable they would be to negotiating.
Once I’ve found a place I was interested in, I did my market research. I compared price per square feet of the unit to the other units around it. I used this data to make an initial offer that was lower than the asking price and settled somewhere in the middle.
Once the inspection came in and I found out that a few repairs needed to be done, I used that as another negotiating opportunity. I figured out the market rate for those repairs. I asked the seller to lower the price by triple that amount. Again, we settled on an amount in between.
Once the appraisal came in, I furthered negotiated downwards. In reality, appraisal values aren’t always reflective of the market value. The appraisal value came in lower than I expected, and a lender will only loan me money up to the appraised value. I used that as another negotiating chip to lower the pricing below the comparable units in the market. At the end of the day, I ended up saving about 5% off of comparable units in the area and settled in less than a month of starting my search. It’s not a huge percentage and I could probably have saved more if I waited for the perfect opportunity, but I can’t complain about the savings, especially considering the amount of time that I spent searching.
Over the years, I have learned a few negotiating tips and principles that have helped me when making large purchases, negotiating job offers, cutting down expense, negotiating business agreements, or any other type of purchase. I wish to share some of those tips and principles with you today.
Know Your BATNA
Your BATNA is your “best alternative to a negotiated agreement”. If you were to only learn one thing from this post, your BATNA is that thing. The stronger your BATNA, the more comfortable you are with walking away, and the stronger your negotiating position.
Think about it this way, can you walk away and still be fine? If the answer to that is a yes, then remember that.
Staying at a current job, building your blog, or starting your own business are all viable alternatives to a job offer. I walked away from a job offer once because it didn’t offer the pay I was looking for and didn’t offer enough substantial upside to my current position.
My BATNA, staying at my current job, was better than the job that was offered to me. I’m sure all of you have decided not to make a purchase because you realized that you didn’t need the product or didn’t think the price was fair.
The next time you are negotiating with a salesperson, remember your BATNA. Remember that there are other stores and other sales that go on.
Remember that it is okay for you to not make a purchase.
Get Multiple Proposals and Offers
Whether you are job hunting or car shopping, it is always advantageous to have multiple offers. It gives you a better idea of what the market is offering and allows you to have your potential employers or suppliers bid in your favor.
Your value automatically increases.
When car shopping, reach out to multiple dealers and get quotes. In my business, we call this a “request for quote”. When looking for suppliers for your new business, reach out to multiple manufacturers. Of course, price isn’t the only determinant in your selection process, but it is a major factor.
I have a friend who was able to shed a few grand off the price of a new car. He emailed multiple car dealers and asked for a quote for a specific make and model. He ultimately got the car dealers to bid against each other without even having to visit all of them. As a result, he saved time and money while maximizing the value he obtained from the car dealers.
Condition Your Potential Suppliers/Salespeople/Employers
Don’t give away your position when talking to employers, suppliers, dealers, or any other selling entity even if you are highly likely to choose one since that will give away your negotiating power. Don’t make huge decisions on the spot, and instead, say that you need some time to make a decision.
You want to give them the impression that you can walk away at any time.
As a result, you’ll get more attention, better service, and better pricing proposals. When working with suppliers for your own business, act on behalf of a fictional manager/owner/client and defer questions you don’t want to answer to your fictional manager/owner/client.
The idea of “supplier conditioning” has helped me numerous times at my job by allowing me to divert difficult questions, gain better service, and gain better pricing when negotiating business deals with suppliers and manufacturers.
Understand the Market
You need to understand the market forces at play.
Is it a hot job market or are people struggling to find jobs? Are the oversea manufacturers hungry for business or are they so busy that they have very little manufacturing capacity left?
These market forces will determine how easy it is for you to negotiate what you want.
Understand the Product
Understand the product you are negotiating. Is it a simple widget or a complex instrument? Are there many customizable features and parts? Margins tend to be thin with simple widgets so you probably can’t get too much of a discount (unless the supplier increases their manufacturing efficiencies), whereas a complex instrument probably has a lot of profit already built in. For example, diamonds can be marked up anywhere from 18%-100% depending on the brand and seller. As a result, you have more flexibility when it comes to negotiating the pricing downwards. A car may have many features, accessories, and packages, thereby giving you more levers to pull when negotiating for a vehicle.
Are you (your time) the product in a salary negotiations? In that case, understand your skill set and experience relative to others. If it is an internal move and you are a star performer, then you already have the advantage of a quick and easy on-boarding with a lot less required training and risk for your employer. The disadvantage is that your employer already knows how much you are being paid.
Understanding my own skill set has allowed me to negotiate my way upwards in my career. I can come to the table and tell people exactly what I can provide and back it up with solid previous performance.
Understand Negotiating Ranges
Look at the diagram above which shows the range of prices the buyer is willing to pay and overlaps it against the range of prices that the seller is willing to sell at. Understand that the seller wants to get the highest price possible whereas the buyer wants to pay the lowest price possible.
If there’s no overlap between the seller’s range and buyer’s range, then there’s no deal. However, if there is overlap between the ranges (see the green area), then you’re negotiating prices within that range. The lower the price within the “zone of possible agreement” the better off the buyer (you) will be.
You Can Always Ask
Don’t be afraid to ask, you’ll never get anything if you don’t. However, just make sure your asks are within reason (unless if your negotiating power is so high that it won’t ruin the relationship).
Once I saw a supplier ask a client I was working with how much she wanted to pay for a very expensive product. She said $1. In most cases, that may come as insulting, however, in this case, our negotiating power was so high that it didn’t make a difference. It was her tactic of obtaining the lowest price possible. However, in general, keep your asks within reason and supported by your research.
Also, don’t be afraid to ask for other items of value:
- Can you get better accessories for your car?
- Can you get better warranties free of charge for supplies that you want to sell?
- Can you get more work flexibility?
- If you buy more product, can you get a volume discount or better shipping terms?
These are all things that are very negotiable.
My mom grew up in Vietnam during the war. It was a totally different environment when it came to buying goods and services. It was common for people to sell stuff off the streets and for people to negotiate prices. As a result, she loves going to flea markets, furniture stores, and anywhere else you can negotiate prices. She has no psychological barrier and intuitively understands the market forces at play. She is always willing to ask for better pricing or better deals. As a result, she generally ends up getting a very good deal.
Perhaps you have large medical bills. I’m sure the hospital would rather have you pay back some of it than nothing at all. Don’t be afraid to explain your situation and ask for a discount. The hardest part is finding the courage to ask in the first place.
Use a Spreadsheet
Keep track of the products/services you are comparing before you make a large purchase. I recommend using a spreadsheet – but the key here is to write it down. Whether they be homes, cars, apartment rentals, home renovations, or anything else, use a different line to track the price and any other important qualities of each item. Ask each supplier/salesperson the same basic questions and keep track of those answers. As a result, you’ll find it much easier to compare your products and come up with reasonable pricing proposals and counteroffers. You can even let one supplier know that another supplier is offering the product at $X, and ask them to beat $X.
When I was apartment hunting before relocating for a new job, I put all the potential apartments, their price ranges, their square footage, and any other important details in a spreadsheet. Using this method, I was able to figure out which apartments offered the best value and best fit for my needs.
Negotiating is more of an art than a science. There is no exact formula, only recommended guidelines, and it is not something we are taught in school.
In fact, we are conditioned from birth against negotiating. As kids, our parents don’t want us negotiating for more TV time or toys. As adults, stores don’t want us negotiating pricing with them.
As a result, most people have an aversion to asking for more or negotiating for a better position. However, negotiating is an extremely valuable and important skill if you want to succeed in life. Understanding the principles I have outlined above will help you improve your negotiating skills. Everyone has had to negotiate at one time or another.
If you use the principles I outlined above, you can better understand what is going on and pull the right levers to get what you really want.
Do you tend to negotiate? Why or why not?
Subscribe to get the free Master Your Money course!
Join the free email course and finally learn how to manage your money better, pay off debt, save more money, and reach financial freedom. Get our newsletter and get access to the freebie: