Negotiating Customer Agreements

Author: Steve Marr

 

Every business needs to negotiate agreements with customers. The prophet Amos wrote, "Do two walk together unless they agreed to do so?" (Amos 3:3 NIV). Some agreements are pretty basic, such as a customer placing $5.00 on the counter and walking off with two gallons of milk, (if you can find it that cheap) .

Not all agreements are so simple. Many require some type of negotiation. Keep these factors in mind as you negotiate with your customers:

First, realize your goal is not to squash the other person. Rather, you want to win, and winning is coming to an agreement that is beneficial to both parties. If you force your position on others, you may win today, but your victory will last only as long as you maintain that advantage. Competitive games create a winner and loser, while negotiating should aim at creating two winners.

Second, develop a clear understanding of what you want. This may seem silly in the sense that you want sales generated out of successful negotiations, but knowing your priorities will help you stay focused. If cash flow is slow, you may offer a lower price in return for cash payments. Or you may lower the price in return for a long-term contract or higher volume. Also, inventory is high, a price reduction may help move inventory and generate cash.

Third, you need to understand what your customer needs and wants. What are the payment terms, delivery schedules, quality, quantities, and pricing that works for your customers? When bargaining with Wal-Mart, price will be the key factor as they buy from the low cost supplier. Other customers may want you to store inventory and ship as needed. Each relationship will be different and establishing customer empathy is a key step in successful negotiating.

Fourth, be prepared.  When your preparation is thorough, you can use that knowledge effectively. For example, when a customer raises an issue, you need to be ready to explain the rational for your position. If a customer pushes back requesting a lower price, you need to know the pricing of the competition. If your price is excellent, you can communicate that to customers. For example, when a concern is expressed with the three-month lead time required to order a specialized machine, you need to explain why the time is needed and the benefits of waiting. If you canít clearly justify your point with facts, you probably hold a weak position.

Fifth, prioritize your needs and wants. Nobody gets everything they want, but a need is something you must have. For example, suppose a customer wants to special order an item. Since you probably wouldnít sell this item to another customer, you may need a 50% deposit. Your customer has a want and you have a need. On other regular purchases, you may want cash up front, but a credit-worthy customer may want extended terms. You want cash up front for regular purchases, but donít necessarily need it (with credit-worthy customers). Being able to differentiate between "needs" and "wants" will help you negotiate better.

Sixth, ensure you build trust.  Without trust, why should anyone do business with you? If you sense distrust, simply ask the question, "How can I validate my good faith?" Negotiating an agreement with a customer without trust is nearly impossible. For example, if you donít trust someone to honor your invoice would you do business?

When you take the step of planning and executing your customer negotiations, you will build relationships that will generate long-term business. When you stay focused as to whatís important and approach each discussion with a "how can we both win?" attitude, you will be well on your way toward successfully negotiation.

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