Knowing how to negotiate a winning contract is essential to the success of your business. Without the right negotiation skills, your business risks damaging relationships with clients and running into losses. With the right skills, you stand to earn more revenue and reduce your business risks.
Negotiating a profitable business deal is about creating opportunities and exchanging value. The wrong way to handle negotiations is by dominating and intimating others into accepting your terms. For long-term positive results, try these eight tips and tactics for creating profitable contracts.
Identify Clear Objectives
What do your business partners and clients want to gain from the contract?
Most business negotiations include discussions on risks and revenues. When a client purchases a product, that client is taking a calculated risk. The client risks spending money on a product that may not offer enough value to them.
The best negotiations class prepares business people to identify the objectives of both sides early on. As a business person, you want to achieve acceptable risk while maximizing rewards. This starts by clarifying what each side wants to gain from the deal. Getting to grips with the objectives makes it easier to craft a value-based offer.
For example, if you’re leasing off your premises to a business, you might provide a better solution if you know the nature of your client’s business. A supermarket may need open space while a lawyer’s practice may need office cubicles, for example.
Use Diligence in Documentation
Put everything in writing.
Successful business leaders rely on proper documentation. Written records provide a clear history of the negotiation process. With clear records, you can capture and keep ideas, proposals, and other facts. You can also use your written records to correct miscommunications. Proper records can also provide a handy defence against adverse legal action.
Records that are easy to understand can build trust and integrity. During negotiations, prepare a letter of intent or a term sheet to reflect the terms of your deal.
Research Contract Laws
Find out which laws apply to the business deal you’re making.
Usually, business negotiators are striving to achieve business objectives and meet legal requirements. You want to avoid creating a contract that turns out to be unenforceable or even illegal.
Before you meet, search applicable laws that apply to your rights and obligations, and those of your clients. If it’s a big or complicated deal, you may want legal expertise on your side to assist with negotiations and drafting the contract.
Preparation is Key
Gather your facts and prepare your financial statements.
Ensure all relevant paperwork is ready in case you need to make a presentation or show proof of anything. Prepare your offer and possible counteroffers before negotiations. Research and understand your clients by reviewing their company profiles, website, and social media.
Knowing the company and the people behind the company can lead to better deals. Review similar deals the company has made in the past. The terms of the company’s past contracts can guide you in skilfully creating more value and better offers.
Control the Agenda
Controlling the timing, location, and pace of negotiations can create an advantage.
Control can provide your team with a feeling of mental preparedness, so it’s important to take a firm lead during a negotiation.
Steer the meeting’s agenda by drawing the draft proposal. In negotiation training, people learn that drawing the first draft can allow you to frame the deal’s structure. Drawing a draft highlights the key points you would like to discuss and gathers momentum for your side. Most customers would be reluctant to make extensive changes to your draft, except if the draft is unjustifiably one-sided.
Use Creative Customization
Be flexible enough to match the contract to your client’s unique desires.
For most business people, contract negotiations are about skilfully creating lasting and profitable relationships. You want your client to feel appreciated and to provide repeat business.
One way to appreciate your client is by customizing the contract’s terms and conditions (T&Cs) to suit your client’s needs. Some T&C concessions that may attract return business include:
- Offering premiums such as free training, extra supplies, etc.
- Using volume-based pricing to encourage buyers to buy more.
- Adjusting the contract’s period to match the buyer’s fiscal year and budgets.
Look Beyond the Contract
Keep your clients happy by having a plan to follow through on your contractual promises.
During the meeting, it pays to show your client your plans for making them happy. Ensure the client is using your product or service effectively and gaining maximum returns from their purchase.
You can make plans to stay involved, offer ongoing training, and schedule touchpoints. Keeping your client happy can develop them as a partner who may bring you more business and tell others about your superior services.
Consider Viable Options
What steps can you follow if you don’t reach an agreement?
In most situations, you want to have competitive alternatives. Having viable options can boost your negotiating position. With other options, you have more leeway to bargain on unfavourable terms. Your team may also not be in a desperate rush to sign a deal and can use their time to judge the contract on its merits.
For example, if you are selling your business, it would be to your advantage to have several potential bidders. When the other side knows they may be facing competitors, you are likely to obtain better contractual terms and better pricing. If a buyer knows they are the only bidders, they may hardball you into making unfavourable concessions.