Before we get into this section, if you have not read “Never Split The Difference” by Chris Voss, stop reading this and go order it now.
Obviously, the prerequisite to negotiating is running a strong cycle, and demonstrating and selling the value of your product. You need to have everyone bought into your solution prior to negotiating price, otherwise you are hamstringing yourself.
Once that is done, most reps make three common mistakes when negotiating deals: they anchor too low, they negotiate too early, and they view the negotiation as a bloody gladiator battle:
What is anchoring bias? Anchoring bias occurs when people rely on pre-existing information or the first information they find when making decisions. So in pricing, if you can “anchor” your prospects expectations on a high price point, when you get to negotiations the “compromise” point may still actually be a killer deal for you ultimately helping you get to quota that much faster.
Always try to anchor as high as you can (list price, largest package, most features, etc.) so that the prospect thinks they are getting the best deal and you maintain a good price point.
Negotiating Too Early
Procurement has a “quota” the same way we do. This is critical to understand for a few reasons. First, you should avoid negotiating price before you get to procurement as much as possible. Your champion will do some sort of preliminary negotiation (especially if they're on a strict budget), but keep in mind anything you negotiate here does not normally count towards the procurement agent’s goals. So if you get aggressive with your champion, you are digging yourself a deep discount hole that will only get deeper before you can get the signature. This is where having a strong business case to justify your high anchor from above will help.
Procurement does not have to be a battle. Some of the best reps find ways to make procurement champions as well. An easy way to do this is to take a step back and explain your solution to them before the negotiations. Procurement normally gets looped in when a purchase ticket gets logged - they do not always know what/why they are negotiating. If you can take the time to explain your solution and the value to the business, you can sometimes build champions out of procurement - which will help when trying to push deals across on tight timelines at EOQ. Sales methodologies like MEDDPICC can help with this.
Once you have made a champion out of your procurement contact, you can often get them to disclose the endpoint they need to hit (10%, 15%, etc). If you have maintained your high anchor, this should not be a problem. You can still push back to some degree, use this to counter for longer terms, branding language, et cetera.
If you skipped over the first line in this section - seriously read this damn book if you want to be a recurring face at President’s Club.