4 things I've learned about negotiation

1. Don’t lowball

Conventional wisdom with buyer’s negotiation is that you lowball, and hope to meet in the middle. This has never worked for me, and I've always lost, or not gained anything, when I've attempted this approach.

I have found negotiation to be neither art nor science. I may be wrong, but I refuse to believe that you can outsmart someone in giving up something for a price they weren’t expecting. Instead, negotiation appears to just be conversation. More rationally, it’s about unlocking the maximum range of discount a seller already has in mind, but is not sharing with you, through conversation.

You may indeed be able to coerce a seller to letting go at a price they weren't expecting, but this is what I would call “bad taste” negotiation. You leave a bad taste in the seller’s mouth. This may affect the quality of work or product and create a non-lasting relationship. Successful negotiations should be win-wins.

I’ve found only one strategy that has worked every single time, and it’s the opposite of lowballing. It’s what I would call the “small wins” strategy. That is, instead of trying to squeeze every dime and nickel out of every deal, you squeeze only a reasonable amount out of every deal, increasing the chance of a successful negotiation, and adding up to meaningful wins over many deals.

With the lowball approach, which I have never found success with, a seller offers you a service at $2,000, and you counter at $1,200, with the hope you meet in the middle at $1,600. This may work sometimes, but it involves too much back and forth, too much begging, too much posturing, and ultimately, too much emotion. It’s kind of embarrassing. And the relationship starts off strained. Instead, you assume that the price offered is a reasonable market price, and you try to optimize for small gains you may be able to make. If you counter at $1,900, the seller is 90% likely to accept your offer without a counter offer, saving you the pain and hassle of a back-and-forth. If you counter at $1,800, the seller is 80% likely to accept. $1,700, 70%. $1,600, 60%, etc.

You will almost never lose a negotiation if you ask for $150 off $2,000. But you’re very likely to lose and start a tumultuous back and forth if you ask for $800 off $2,000.

With this strategy, I’ve went from not saving any money on any deal, to saving $100 or so off every deal, or a proportional amount depending on the size. It’s sort of like micro-negotiating. It’s a lot less painful and time consuming than strapping yourself in for a lowball pitch.

2. Ask permission

I’ve found that when a seller makes you a proposal, say for $1,000, and you say, “can you do $850?”, the seller is at most times taken aback, or not really prepared to respond properly. They’ll look down, grimace, look up, think, stutter, and ultimately, be put on the spot too abruptly to give you a comfortable answer. What I’ve found works better than a random counter offer is first allowing the seller to enter the mindset of negotiation, and then to, ultimately, counter themselves. Instead of throwing an arbitrary figure, you can instead ask them, “can you work with me on the price?” In that case, they’ll either say, sorry, no, this price is absolutely final (rare), or, they’ll likely say, “what did you have in mind?” At which point you’ll present your case for why you think $850 would be a better price for you. And make it good. It can’t just be “$850 'cuz why not?”

3. Back your counter with other options

I’ve found that the most powerful negotiating tool is leverage. Options. Even the most reluctant sellers will eventually negotiate if you’ve done your research and can present them with proposals other sellers have quoted. No one wants to see their competition eat their business. This means you actually need to get multiple quotes for every service/lease/product you’re seeking. At that point, the negotiation is really done for you. You just need to forward the lowest proposal to the seller you prefer to work with.

4. Always negotiate when reasonably possible

Not because you want to be annoying, but because it’s good practice. Even if you don't care about the money. Negotiating on small deals is good practice for the moment you'll need to negotiate the deal of your life. And it’s the only way you’ll find what negotiating style works for you. Each person has a level of shamelessness they must expose when negotiating. For me, I don’t like making a seller uncomfortable, nor do I like making myself uncomfortable. And I don’t like to play tough guy. I also don’t like to negotiate with very small or indie businesses. If it’s just one dude offering a small home service for $200, and I find that price to be reasonable, I won’t negotiate, because the margins are already going to be extremely tight. If it’s a multi-location business performing a multi-thousand dollar service, I’ll probably negotiate.

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