Business negotiations are a critical part of the day-to-day life of any business. Making or breaking a deal can have tremendous consequences for your company. Missing out on opportunities can deal a fatal blow to an otherwise great product or service.
Though the stakes might be high and the task daunting, don’t let yourself be thrown off by a business negotiation. While innate negotiation skills such as relational intelligence and charisma can make the difference, preparation and strategy are key.
This guide will tell you exactly what negotiations are all about. We’ll discuss the negotiation process, taking you through the 6 steps of business negotiation. Ready to start striking deals left and right? Scroll down to get started!
What is a business negotiation?
Negotiation teams are sat around the bargaining table: a negotiation has started. Business negotiations involve at least two parties looking to reach an agreement. The topic of negotiations can be quite diverse, as the negotiation process can apply to all areas of business, from service delivery to merging and acquisitions. The negotiators may also come from different backgrounds and industries: for example, they could be suppliers from all around the world.
A business negotiation can be seen as a discussion between two or more parties focused on conflict resolution. The goal is to arrive at a win-win situation, meaning all sides will benefit from the contract signed in the end. Since participants all have different outlooks and strategic interests, making concessions is required in order to make progress.
Knowing when to yield or how to defend your positions will determine the outcome of the negotiation. Reaching your goals while ensuring your partners are content with the terms of the deal is a delicate balancing act. This is why negotiating requires negotiation strategies and thorough preparation.
The 6 steps of the business negotiation process
The negotiation process can be divided into 6 steps. Structuring your approach to negotiating will help you define an effective strategy at each stage of this sometimes lengthy process.
Step 0: Preparation
Preparing for negotiation is an important first step. Going into a negotiation without having all the required information and knowledge about both your own offer and your partner or prospect will always lead to disastrous results.
You must think about your selling points, arguments and requirements before the negotiation starts. Set clear goals to describe what you expect to achieve with this dialogue, and keep them in mind at all times.
Conversely, you should gather as much information as possible about your negotiation partners. Try to guess what their negotiating style could be, what their needs and objectives are in order to better adjust your approach and refine your value proposition.
In the case of M&As or investment rounds, a term sheet outlining the rough contours of the negotiation can be drafted by both parties. This non-binding document may help everyone get on the same page and align their expectations.
Step 1: First contact
The first contact must have two goals: establishing a cordial relationship and presenting the objectives of the negotiation.
Though the first meeting might not be very long, this phase is of utmost importance and will have a lasting impact on the entire negotiation process. You only get one chance to make a good first impression. The parties involved will base their opinion of you and your firm based on this first contact.
Be sure to pay special attention to the way you express yourself and your ideas, including both verbal and non-verbal communication. Maintain a professional appearance, an open and warm attitude, smile and use body language effectively. Observe the other negotiators to try and know more about their outlook and the perspective from which they seem to approach the negotiation.
Step 2: Need definition
During this second phase, you will need to demonstrate your active listening skills. Understanding what the other party needs, wants or any other relevant information can help you make more enticing offers. Ask open questions to gain valuable insight.
You can use the 5W method:
- Who is involved at large?
- What are the main issues at hand?
- Where, meaning the scope of the negotiation
- When should negotiations take place?
- Why is the negotiation held?
- + How could the problem be solved?
Remember that your goal is to arrive at a win-win agreement: your attitude should demonstrate a genuine intent to understand their concerns and prove that you are willing to compromise and find ways around issues.
Step 3: Offer presentation
Once you are familiar with the expectations and needs of each party, you should be able to conduct a more effective negotiation. Now that you have a good understanding of their motives, you can offer more personalised solutions to their concerns.
Be sure to meet your partners’ expectations in your argumentation. Your presentation should never be a monologue: engage the other party at each step. You can gauge their response over the course of your speech by paying attention to their attitude and asking short yes/no questions to check everyone agrees with your points.
Step 4: Objection management
Listening to divergent opinions and taking different outlooks into account is a prerequisite for conflict resolution. Objections should be viewed as a sign of engagement and interest rather than obstacles.
Provide solutions and answers to minor objections and use more serious issues to spark discussion. The different stakeholders may raise issues that, if managed properly, could strengthen the final agreement. Make sure you understand their points in detail and feel free to ask follow-up questions.
Step 5: Contract negotiation
Once a common path forward has been established, the final elements of the contract or agreement can be discussed. This phase is at the heart of the negotiation, as it is during this step that the outcome will take shape.
This is when business negotiation skills are most useful. Your negotiation strategies should leverage all the key elements of the deal. One of the most important bones of contention is usually the price.
Thus, you ought to be able to explain why and how the price you’re offering was set. Highlight your competitive advantages or the quality of your solution. Don’t let the price overshadow other aspects of your value proposition: it is but the reflection of the other elements that make up your offer.
This step is made of compromise: both parties should be flexible and accommodate the other to strike the best balance between their interests. Think about which elements you’re willing to compromise on and which things you cannot afford to concede in advance.
Step 6: Deal closure
Do you feel like your interlocutors are happy with your offer? If they seem genuinely content with your proposal, you can proceed to the closing phase. Ask questions such as “What shall we do next?” or “Do you have any other concern?” to prompt the other party to make a choice or settle on the current offer.
Do not treat this step as a mere formality: listen carefully for any remaining questions and make sure all doubts have been lifted. Ensuring the negotiations have truly come to an end and that everyone sees the deal as beneficial will ensure the negotiated agreement will last and serve as a robust base for its execution.
If you feel that the closing phase is dragging on for too long, you can instil a sense of urgency by stressing the fact that this is a temporary offer or that your solution should be adopted quickly. Only resort to this technique if you are certain your solution will satisfy your partners or client. Otherwise, this will result in a rushed contract.
This step should allow you to build a trusting relationship: taking sufficient time will plant the seeds of customer loyalty or give rise to a long-term collaboration well after you’ve closed the deal.
Mastering the negotiation process
The success or failure of a company often hinges on business negotiations. These talks must be seen as a form of conflict resolution. Successful negotiations require a listening ear and an open hand from both sides.
Be ready to suit the needs of your prospective partners, while keeping your own best interests at heart. Follow our tips at each step of the negotiation process to build strong partnerships and clinch the best deals!