Every deal is important. In these times, because there are fewer of them, each deal is more important than ever before. Unfortunately buyers are putting sellers under much more pressure than ever. Procurement professionals (and they are professional) are more skilled, most knowledgeable, and more powerful than in previous times.
As I have traveled around the world visiting our customers, they have been recounting how they are seeing many new barriers appearing. Obstacles seem sometimes to emerge unannounced, and deals considered complete can sometimes disappear without warning. As we know, surprises in sales are always bad, and surprise losses, price pressure, new competitors, or changing customer priorities, are all factors that impact your ability to make your targets. Reducing these surprises is one of the main benefits that our customers get from applying the deep sales methodology in our smart Dealmaker software.
I remind people to stay focused on each of the four levers that impact sales velocity; numbers of deals, win rate, average deal size and sales cycle duration – and the middle two of these (win rate, and average deal size) are impacted by your ability to distinguish between what a buyer is actually interested in and the position they are presenting to you. It is important not to confuse ‘positions’ with ‘interests’, and I will share a negotiation story that I hope will illuminate the difference.
A position is a particular stance taken by one party in a negotiation. It typically outlines their preferred result. Interests, on the other hand, are the reasons behind the position. Interests define the problem. They are based on intangible motivations such as need, desires or concerns, which underlie the preferred solution. Your interests in a negotiation are whatever you care about that is at stake in the process. Effective negotiators are clear on their ultimate interests, and those of the other side. They also know their trade-offs among lesser interests, and are remarkably flexible and creative on the means. Here’s the story.
Simon is a sales executive in a software company that provides sales management solutions to the life assurance industry. A typical sale for Simon comprises a software license fee of $80,000, with an additional annual maintenance and support charge of $20,000, for a total purchase price of $100,000. Having competed effectively in a bid to a large insurance company, Simon was the preferred supplier.
When it came to the negotiation, the buyer informed Simon that he needed him to sharpen his pencil a little, as he was only prepared to pay $75,000 in total. Simon was surprised, and a little dejected. He couldn’t sell the software without maintenance, and there wasn’t any way he could provide a full 25% discount.
He tried everything to raise the buyer’s offer. He offered free additional training programs to the buyer. He suggested that, if he could hold his price, he could add a second year’s maintenance at a reduced rate. He even offered a dedicated support agent, just for that customer. It was all to no avail. The customer held firm, stating that he could only pay $75,000. Simon was confused. This customer had been reasonable to deal with right through the selling cycle. He provided information as requested and gave honest feedback on issues and progress. Simon felt he was at an impasse. The customer wouldn’t move from his $75,000 number – not one dollar. Finally, Simon just asked the customer, “What’s magic about $75,000?”
The customer’s response opened the door to a solution. “It’s all I have left in this year’s budget.”
Though Simon had checked budget availability earlier in the selling cycle, a small project had been approved that took $50,000 from his buyer’s coffers, leaving him with only $75,000. That left him $25,000 short, if he agreed to Simon’s number. The buyer’s issue wasn’t value or price. It was that year’s budget. His position stated that all he was prepared to pay was $75,000, while his interest, once uncovered, revealed that $75,000 was all he was prepared to pay in that financial year.
Simon solved the problem by selling him a two-year maintenance contract, and agreeing a payment schedule that met his customer’s requirements. “Can you commit to a two-year support deal, if I structure the payment schedule such that you only have to pay $75,000 this year?”
Good dealmakers probe beyond combative positions to uncover the shared interests that lie beneath. Arguing over positions is inefficient, and frequently damages the relationship between the seller and the buyer. Too much emphasis on positions drives negotiation toward a risky, ritual dance that does not meet either party’s fundamental concerns.
Learning about (and reconciling) the full set of interests requires patience, researching the other side, asking many questions, and really listening. When you shift the discussions from positions to interests, the path to resolution becomes clearer. When you focus on the buyer’s interests, you can get to the heart of the matter more quickly, promote mutual understanding, and accelerate the search for a creative solution.
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