In your business there are only two fundamental ways to increase profits. Either increase your sales or decrease your costs, or do both.
Most business people seem understand the need to increase sales, however very few seem to understand the impact they can have on their bottom line, if they took just a little time to develop their negotiating skills.
Skills that could ensure that they buy all goods and services at the lowest price possible, and cut their costs without cutting back on quality or quantity.
Some say; “But I’m too busy to shop around on everything I buy, it’s simply not worth the time!”
Well this may be correct in some cases. I believe that when you invest time into a business activity, you should get a good a good return on the time you invest or don’t do it.
A few months ago a client told me, that he was about to purchase some new computer equipment and software. He felt he had a pretty good price and was ready to order.
I gave him a few suggestions and 3 days later concluded the negotiation with the supplier. Bob had saved an additional $10,000 on the hardware and secured an additional $12,500 worth of customised software and training from the supplier.
I asked him how much extra time this had taken. His estimate was 5 hours, yet he’d saved $22,500. Effectively he had made more than $4,500 per hour for the extra time he had invested. Not a bad hourly rate!
Last week another client phoned me. Kate had just read my book and was about to buy new motor vehicle. Kate felt she already had a good deal and simply asked if I had any extra suggestions before she signed on the dotted line.
I referred her back to a few pointers in the book and she spent the following morning on the telephone. By that afternoon she had sliced another $5,800 off the price of her new car and gained an additional $3,000 on the trade-in. In a little over 3 hours, Kate had saved $8,800. That extra 3 hours had been worth nearly $3,000 per hour.
Both Bob and Kate were both amazed and surprised. Frankly it wasn’t because these are not isolated instances. I see clients make savings like these (and much more), every week simply by understanding how to negotiate.
I asked them both to consider what volume of extra sales they would have make to generate the equivalent amount of profit. Bob estimated about $204,000 in sales!! His average gross profit margin is just 11% in his business. That was more than a week of trading for Bob.
Kate works from home and with a margin of about 38%, Kate estimated that she would have needed about $23,000 worth of sales to make this $8,800 in profit. That was about 1 month of hard work for Kate in her business.
So is it worth developing your negotiating skills?
Well you be the judge, but if you are a skilled negotiator, I’d suggest that negotiating could be some of the most highly paid work you will ever do in your business.
And what about your staff?
Do your staff routinely make purchasing decisions without the skills necessary to negotiate the best rates and prices from suppliers? How much could they be saving if only they knew how?
Here are a few quick tips on negotiating in your business.
Negotiating Tip 1
Understand that everything is negotiable. Yes, I do mean everything.
Now I don’t necessarily mean you can get a cheaper price in every case, but what if you could negotiate free delivery, earlier delivery time, longer trading terms, or for the supplier to produce the stock you need, and then only bill you as you take it in small quantities. You’d be surprised what you can get if you simply ask.
Negotiating Tip 2
Take a hard look at all of your existing suppliers and apply what I call zero based thinking. Ask yourself this question, “If I wasn’t already dealing with this supplier, would they be my first preference, and why?”
Now don’t get me wrong here. I’m not suggesting that you give all of your current suppliers the “chop! You’ve taken time to build relationships with many of them, and maybe they help you when you need help, and that’s important.
All I’m suggesting is that at least on an annual basis, shop around and check that you are getting the best deal possible. It’s quite common for suppliers to go in with low prices and extra ordinary service at the beginning of the relationship, but 6 months down the track they’ve adjusted their prices up a little at a time, and their service has dropped off too. Competition and avoiding complacency keeps everyone on their toes.
Negotiating Tip 3
Make a conscious effort to develop your negotiating skills. There are some excellent books, courses and audio programmes on negotiating available today. Learn through the experiences of others who have studied this “art” and “science” rather than through your own “school of hard knocks”.
Trial and error is the most expensive way to learn anything!
Incidentally, most Australian’s are not good negotiators because of the “cultural conditioning” they’ve been exposed to since their early childhood. Just a few words or phrases during a negotiation can make all of the difference. For example I taught a young lady last week how she could save a fortune every time she shopped by using 4 simple phrases after the sales person told her the price. They were;
“How much!!!” Recoiling in horror. (This is called “The Flinch”) And then remain silent and wait for a response which is often an immediate concession.
“No, I’m sorry you’ll have to do better than that!” (Called “The Vice”) And then remain silent and wait for an answer. This is followed by, “So what’s your best price?” (Another version of “The Vice”)
And then remain silent, and after their response.
“And how much for cash?” (Again “The Vice”)
If you doubt that these four little phrases work, try them and see what happens.
By the way, if you are in sales be sure you know how to handle these phrases when they are used on you. You need negotiating skills when you are buying and selling (to protect your profit margins).
Negotiating Tip 4
Always ask one more time. When you think you’ve got the best possible deal, ask just one more time for something extra, or an improvement in their offer and then “shut us”! You’d be surprised at what you can get, even after you feel you already have the best offer.
Negotiating Tip 5
There is always a better deal somewhere. Don’t believe the line, “This is a unique opportunity. If you miss out now, you’ll be sorry later” I believe good deals are like trams. If you miss one, another will come by sooner or later. Most times, sooner than you think.
Negotiating Tip 6
Create competition between suppliers. The more alternatives you have, the more leverage you have.
For example several years ago I had what I thought was the best possible deal in Australia on a new prestige new motor vehicle. After all I’d spoken to every dealer in Melbourne and created fierce competition.
The following day I flew to Sydney on other business where I decided to opened up the deal to there and in Adelaide. In 6 phone calls I saved an additional $3,500. I drove my new car back from Sydney two days later. It was a nice drive, made even more pleasant by the though of that $3,500 still in my bank account.
Please don’t dismiss the above examples as only being possible if you are a professional negotiator like myself.
These skills are easily developed, but even more important, it’s important to understand that negotiating is a just game, and a game that can be fun and profitable if you play it well, but dangerous and costly if you play it badly. Learn how to play the game and you’ll never become “Shark Bait” again!
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