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It would be wonderful if we could hit a home run every time we
negotiated. If we are selling, we want to sell at list price. If we are
buying, we want a huge discount with lots of free services thrown in.
And sometimes, we will hit that home run. However, most of the time, we
will be dealing with smart people on the other side of the table who
also want to hit a home run and it won’t be that easy.
Successful negotiating can be about big successes, but it is primarily
about adding up lots of little successes. If you can consistently
improve your results by 1, 2, or 3%, ultimately that adds up to huge
increased profitability for your business.
Here is how it works. Let's make up a company. We’ll call them Alpha
Manufacturing. Let's say that Alpha’s total revenue last year was
exactly $100 million. And let's also say, just to make it simple, that
their pretax margin was 10%.
You are the Vice President for Sales at Alpha. In discussions with your
CEO, you have concluded that you absolutely have to increase your
profitability. And you have decided that the way to do that is to train
all of your salespeople to become better negotiators. Your goal is
modest. All you want to achieve is a 1% average improvement in all your
sales negotiations.
Now, if you had had this program in place last year, and if you had
achieved that 1% average improvement, your revenue would have gone up by
$1 million to a total of $101 million. Since your costs would not have
changed, all of that additional $1 million in revenue would have gone
straight to the bottom-line.
However, before going forward with this negotiation training idea, you
decide to try it out on one of your senior regional sales managers. You
lay out your idea and his response is “You've got to be kidding. Were
dealing with sales people. Our job is to keep their focus on selling.
We'll never be able to teach them how to negotiate as well. But I agree
with you, we need to get that extra one million in profit and here's how
are going to do it. We're going to rev up the old sales engine, we’re
going to redouble our effort, were going to capture market share -
that’s how we will make it happen.”
Now, if your margin is 10%, how much new business do you have to sell in
order to get that $1 million in additional profit. With your margin at
10%, you would need $10 million in new sales to get that same $1 million
in additional profit that just 1% better negotiating would produce.
If your margin is only 5%, which was the case with one of my clients,
you would actually need $20 million in new sales to have the same profit
impact as just 1% better negotiating.
And what IS 1%? Let's say the list price for a piece of equipment that
you sell is $1025. What if you just round it off to an even thousand
dollars? Well, what's 1% of a thousand dollars? It's ten dollars. If you
drop from $1,025 down to $1,000, you've just given away 2 ½%.
So sure, go ahead and try to hit that home run. But remember that the
real money in negotiating is in always doing just a little bit better.
If you can consistently improve your results by 1, 2, or 3%, ultimately
that is where the big impact on your bottom line will come from.
© Michael Schatzki - 2004 - All rights reserved
Byline
Michael Schatzki is a master negotiator
who, for over 20 years, has provided
negotiation training and coaching for
thousands of people in the U.S. and globally. More than 75% of Mike's
programs
are for satisfied, repeat customers. The Negotiation Dynamics® system
really works. Mike can be reached at (888) 766-3530 or at
www.negotiationdynamics.com.
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