Many people think that negotiating is a mystery, a hidden art. They think that an expert is able to to get amazing deals such as doubling his salary or buying a car for half the advertised price.
Simplifying a negotiation
From what I have seen, reality is very different. Nobody does magic. I believe that following a few very simple principles you can leave unharmed from any negotiation. These are general things that I have been picking up and that I often consider to decide whether or not to even start a negotiation. They have helped me and maybe they can help you.
1. Have as much information as possible
Information is key. The more information, the better. Know what the other party values so you know what you can offer.
What is their situation? How much time do you they have to make a decision? Who has a say on the decision but is not in the negotiation?
If you can, know the BATNA of the other party (more on this below). This is perhaps the most important but the most difficult point.
2. Expand the scope, increase the options
Don’t make the conversation about a single variable. Typically, money is the item being negotiated but it is usually not the only important thing.
Increase the variables to try to reach a win-win agreement instead of a win-lose agreement. When negotiating a single variable, each change harms one party and favors the other: a lower price favors the buyer and harms the seller. However, the more the variables, the more likely that the two parties are favored. Prices, guarantees, extras, future agreements, etc.
Be creative to find what may interest you. Maybe they give much importance to something that it costs you very little to grant and vice versa. For example, a discount in exchange for paying in cash.
3. Do not negotiate if you don´t need it or it may hurt you
This is counterintuitive but sometimes you have a lot to lose simply by negotiating. Maybe saving in a negotiation ends up being expensive in the long term.
Say you are going to buy a second-hand car. After a very hard negotiation you get an incredible price and a one year guarantee. You’re happy, even though they don’t want to see ever again. After 6 months something goes wrong and you take it the car to claim your guarantee. You tell them that you need to have it ready as soon as possible. How big of a effort do you think they will make to fix it quickly?
4. Define your red lines
I said that it is important to know as much as possible about the other party, but it is even more important to know oneself. What are you not willing to concede in any way? Some red lines will have a lot of margin and others less. The space within your red lines, is where you could reach an agreement.
For example, a term of less than 2 months, a price less than 1000 euros, more than a year of guarantee and closing the contract in 3 days.
To know if they are really red lines ask yourself if I get 1 month, 500 euros and 2 years of guarantee, could I wait 4 days to close the contract? If the answer is no, it is a red line.
5. Don´t leave the table and don´t make ultimatums
I used to fall a lot in this. As the negotiation threatened my red lines, I stopped negotiating, or put ultimatums. It does not do much good and it pigeonholes you. Additionally, staying at the table allows you to know more information that you can use. Getting out of the relationship hurts and does not help you get what you want.
PRO TIP: If someone gives you an ultimatum, it helps to redirect the conversation without letting it go wrong. If the person with whom you are negotiating gives you a condition that you want to be fulfilled yes and yes and you can comply but you think there are good agreement options for both of you, keep the conversation going. Do not take it as an ultimatum and try to channel the negotiation with something like “I understand that this point is difficult but I think we can both gain a lot with this agreement.”
If in the end you reach an agreement, do not bring up the subject. For example, if they say “we will never sell for 10” and in the end they sell for 9 do not say things like “thank goodness you were not going to sell for 10, if you do not give it to me”. That at least will damage the relationship and can reverse the agreement. Think of something like “I’m glad we’ve reached a good agreement for the 2”, “thanks for being flexible and finding a solution”, etc. Pride causes bad decisions to be made, be humble.
6. Have the power. What is your BATNA?
I consider that this is the most important point. How does it affect you not to get an agreement and how does it affect the other party? When there is a very big difference, the agreement will be asymmetric. MAAN means Best Alternative to a Negotiated Agreement. It is usually used in English (“Better Alternative to a Negotiated Agreement”.
Imagine that you are happy in your work and they make you an offer to leave it and go to another company. Your BATNA is to stay in your work with which you are very happy so you have enough bargaining power. But you have no idea about the BATNA of the company that is making the offer. If you were the only candidate and needed to incorporate someone as soon as possible, your power would be enormous.
Especially in these cases it is important to stay at the table. Instead of saying, “I will not accept anything,” I proposed something that would make you accept, whatever it is: “5 times my current salary, flexible hours, 3 months of vacation, blah blah”. It sounds stupid but in situations of great asymmetry of power these things can be accepted. Maybe 5 times your salary is nothing compared to the losses they can have if they do not incorporate someone.
BATNA from financial independence
Financial independence gives you a very big BATNA.
When you do not arrive at the end of the month, you are almost obliged to swallow with many things, whether you are a salaried employee or self-employed. Interestingly, it is a problem that exists at all levels of the company because the typical thing is to raise your standard of living as you increase in your career. Now you need a house on the beach, a yacht, etc. etc.
The fact of not needing your salary to maintain your standard of living, even for a few months, means that you can make better decisions.
When Benjamin Franklin managed the newspaper “The Pennsylvania Gazette” a person demanded that a certain defamatory article be published. Franklin asked that the person return the next day and that the article be left out while making a decision. Franklin’s response the next day was to explain his BATNA:
I have perused your piece, and find it to be scurrilous and defamatory. To determine whether I should publish it or not, I went home in the evening, purchased a two penny loaf at the baker’s, and with water from the pump made my supper; I then wrapped myself up in my great coat, and laid down on the floor and slept till morning, when, on another loaf and a mug of water, I made my breakfast. From this regimen I feel no inconvenience whatever. Finding I can live in this manner, I have formed a determination never to prostitute my press to the purposes of corruption, and abuse of this kind, for the sake of gaining a more comfortable subsistence
The History of Printing in America, 1874.