Negotiation: Work for the Deal
Negotiating a deal is one of the toughest jobs on the planet. It involves understanding the needs of the customer, how you can fulfill that need, what value you can offer and what concessions can be made so both you and your customer benefit from the transaction.
However, the mistake most sales people make is to sell their product or service even when it becomes unprofitable. The aim the sales person has is to make the sale. They need to report back to their superiors that the visit they made resulted in a transaction being conducted. They therefore overlook the negative aspects in the deal that may cause more harm to them and their company and push for the sale to happen.
The result of this infatuation with making the sale is that sales persons agree to heavy discounts for the customer. Passing in a discount is the easiest thing to do and it will result in a sale provided that all other parameters are acceptable to the customer. However, in giving discounts the sales person erodes the margins that their company can make and therefore lose profits. These profits are supposed to help the company grow in the future as after covering costs, these are put into research and development as well as set aside for future growth plans of buying more machines or land.
Sales persons may make over the top promises regarding delivery time. Again, they are motivated to do so in order to make the sale. They believe the customer will not be converted if they do not promise less than what the customer is demanding. They in fact offer over and above what the customer is demanding in order to make a good impression and to make the sale. Unfortunately this will result in a sales contract being signed or a purchase order being issued by the customer, however, when they receive service which is not promised to them, the customer will be less than pleased. You make the sale, but you fail to make a customer.
Payment terms are another point of negotiation where customers are happy stretching the credit as much as possible. Your company on the other hand would be happiest if the customer could pay before they receive delivery. While negotiating the offer the right balance of payment terms needs to be kept in mind. You need to consider how the payment terms will affect your cashflows as delivering the goods to customer means that you also have to source the raw materials and pay your suppliers. If there is a mismatch between your payment terms with your customers and your payment terms with your suppliers, you may end up without money to make payments. Do not overstretch yourself in your effort to make the sale.
While negotiating, make sure you know what your hard limits are. You need to know the rock bottom price you can offer (and at what volume), the payment terms you can offer, the delivery terms you can offer. If the customer makes demands that are harmful to your business, be prepared to walk away from the deal. This may involve getting pre-approval from your boss so they also know why you are walking away. However, as part of a team, involving your boss and possibly your finance and supply chain teams is necessary to ensure that they are all on board when you go out to make a negotiation with the customers.
Anything which is less than attractive for you should be reviewed and you should decide to walk away from a bad deal. A bad deal harms not only your business in the short run, it affects your ability to continue business with the customer and your other customers.