Whether you’re just starting out in business or are long-established, one of the key practices you’ll need to adopt is to negotiate business deals. So, with that in mind, here’s everything you need to know about business negotiation.
What is business negotiation?
Business negotiation is a process in which two or more parties come together to discuss and reach an agreement on business-related matters. These negotiations can involve various aspects, such as the terms of a contract, pricing, delivery schedules, partnerships, mergers and acquisitions, and other business transactions. In short, you’re trying to agree on a business deal that’s mutually acceptable to both parties.
There are many different types of business negotiations you may need to make over the course of your business’ lifespan. For example, you may be trying to negotiate a deal with an advertising agency, which might include discussing things like how many adverts you’ll get for the fee, and where they’ll be placed. Or you might be signing on a new client, and they’re asking you to reduce the fee by 10%.
Whatever type of business deal you’re trying to land, preparation is key. Understanding your objectives, knowing the alternatives and going into the meeting with a clear goal for what you want to achieve is crucial. Being well-prepared means you’ll be able to navigate the negotiation process with more confidence, and the flexibility to adapt if anything unexpected crops up – as they so often do in business.
Business negotiation strategies
Every negotiation is different, but there are some key business negotiation tactics that you should keep in mind. Here’s how to negotiate a business deal.
1. Prepare for the negotiation
Preparing for a negotiation is crucial. If you go in unprepared or underprepared, you’ll always be on the back foot, and you may not secure the best deal. Before any business negotiations, you should gather all the information you can, and clarify what you’re looking to achieve.
Start by researching the other party. Look at their website, LinkedIn pages, and press releases to understand who they are, what other deals they’ve made recently, and what the terms of those deals were.
Researching the other party allows you to understand their priorities, motivations, and interests. Knowing what drives them helps you tailor your proposals and arguments in a way that resonates with their needs, increasing the likelihood of finding mutually beneficial solutions.
2. Define your best- and worst-case scenarios
It’s also a good idea to consider your best- and worst-case scenarios. The ‘zone of possible agreement’ (ZOPA) is the range in which a mutually acceptable agreement can be reached between two parties – that is, the overlapping range between the lowest point a seller is willing to accept and the highest price a buyer is willing to pay. Let’s say you’re willing to sell a product for £100-£150, and a buyer is willing to pay £70-£120. The ZOPA would be the overlapping price range of £100-£120, the range in which both parties would be satisfied.
You should also consider your stretch goal, which is the best-case scenario. It’s your ambitious, optimistic target that will keep you motivated to aim high and push for the best possible outcome.
3. Know where you draw the line
You should always have an idea in your head of the point at which you’d be willing to walk away from a negotiation when it’s better to terminate it, rather than accept a bad business deal. This is your ‘Walkaway Point’.
Similarly, you should know what your ‘Best Alternative to a Negotiated Agreement’ or BATNA is. This is the course of action you can take if a negotiation fails and no agreement is reached. If you’re in negotiations for a potential merger between two companies, for example, and no business deal was agreed, your BATNA may be to pursue other merger opportunities, or continue to operate as an independent business. A BATNA gives you a benchmark for assessing how acceptable a proposed agreement is – giving you more confidence and leverage during negotiation discussions.
4. Listen to the other party
Negotiation isn’t about trying to dominate the other party, or trying to be the aggressor. The best negotiations tend to come from being amenable and listening to the other party. Listen to what they have to say, understand their point of view and their goals – and remember that you’re trying to achieve an outcome that’s favourable for everyone involved.
5. Use your intuition
Preparation is key, and listening to the other party is important – and both of these points will help you to better trust your intuition. As Peter Jones says in his BBC Maestro course, Toolkit for Business Success:
“Use your intuition to understand when to push ahead with negotiations, when to do the talking, but also when to shut up, sit back and listen to the other person. When I’m sitting in the Dragons’ Den chair, I listen to gain as much information as possible before responding or making a decision. My intuition is often guided by my receptors, so I love to receive as much as I can. That enables me to come out with, hopefully, a bit more of a considered opinion. My gut instinct, combined with the information I’m receiving by listening, makes me move forward more effectively. It’s like poker. Don’t show your hand until the last minute.”
6. Understand the bargaining phase
Bargaining is the main part of the negotiation process, involving the actual exchange of proposals, offers, and concessions between the parties. There are various approaches you can take when discussing business deals, and the best one for you will depend on your business’ needs and goals. Some examples include:
- Nibbling: The “Nibbling” strategy involves making small, last-minute concessions to sweeten the deal after the main terms are agreed upon.
- Bracketing: The “Bracketing” technique strategically proposes extreme offers to create room for compromise and flexibility.
- Building on Success: This is when you start by reaching an agreement on smaller or less contentious issues before moving on to more significant and complex ones. The idea is to build positive momentum and goodwill with easier issues before tackling the thornier ones.
- Good Cop/Bad Cop: You can get different people in your team to take a different approach, helping to emotionally influence the other party.
- Present multiple offers at once: Multiple Equivalent Simultaneous Offers (or MESO) is a tactic that involves presenting several different offers at the same time. Each offer has different terms, but the same overall value to you – increasing the chances of reaching a deal you’re happy with.
7. Close the negotiation
Hopefully, after the bargaining phase, you’ll come to an agreement with the other party – in that case, you can shake hands on a successful agreement and get ready to draw up the contracts. But closing the negotiation doesn’t necessarily mean closing it successfully. It could also mean walking away from the discussion without a deal. Closing is simply the final step in a business negotiation, whether that means finding common ground (and a deal), or acknowledging that you’re unlikely to come to an agreement and respectfully parting ways.
Improve your business skills
When it comes to business negotiation, knowing your goals, researching the other party, and knowing what your best and worst case scenarios will give you an edge – and good communication and on-the-spot thinking will help you to move through the bargaining phase.
Whether you’re ready for business negotiations, or have a great idea for a business, there’s no two people better to learn insider tips and tricks from than Peter Jones and Steven Bartlett.
Peter Jones, star of Dragons’ Den, will take you from generating ideas to launching and growing your business in his BBC Maestro course, Toolkit for Business Success.
Or learn from The Diary of a CEO podcaster, Steven Bartlett, who’ll give you all the guidance you need to get started on your entrepreneurial journey in his course, The 16 Steps to Start and Scale a Multi-Million-Pound Business.
