Thursday, October 16, 2014

The 2nd Immutable Rule Of Sales Negotiation To Remember

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After several years of working around sales negotiation, I have come to realize 2 essential rules of sales negotiation which I want to share with you.
In this article, I am going to reveal the 2nd immutable rule of sales negotiation. You can browse through the 1st immutable rule of sales negotiation here.

Note- This is also applicable to all kinds of business negotiations other than sales negotiation.

After reading this article which includes easy-to-understand illustrations you’ll be able to achieve a win-win negotiation deal!

#Law 2- Knowing the financial benefit of your solution-

Unawareness of the financial benefit that your solution will provide to the other negotiating party will put you in a defensive situation. It will make you the underdog thus forcing to defend your price by offering discounts to enhance value. However, no negotiating party whether in sales negotiation or other type of negotiation would enjoy being in such a vulnerable position.
Hence, it’s essential to determine your solution’s financial benefit to prevent yourself from such losing situations.

Remember- Numbers talk. When you know the financial benefit you’ll be able to achieve a win-win deal by driving a compelling reason of profitability to both the parties.

So how is this done? You’ll understand as you read forward.

How to present one’s financial benefit of a solution?

There are 2 proven methods of conveying a solution’s financial value which you can use-
#Total Cost of Ownership (TCO) –

Total Cost of Ownership (TCO) conveys, “My solution will cost less in terms of usage and implementation than the competitors.”

TCO focuses on cost factor and not your solution’s unique value which it creates. Now there’s a catch! You do not want your buyers to compare your solutions in terms of TCO. This may put you in a situation where you no longer compete based on the value proposition of your solution.

Hence, the buyer will make decisions based on cost. And the best manner to enhance the TCO is by lowering the price further, a situation nobody wants to be in.
#Return on Investment (ROI)-

ROI terms to be a better option as it focuses the attention on the value proposition. By quoting a yearly or a monthly benefit to buyer, you assure him a payback within certain period of time. This is much more appealing due to the predictable and measurable factors it consists of.
Illustration-

Say your solution helps the client to save or earn $25,000 every month. Your total solution cost is $100,000. Therefore, the payback period is 4 months. In this way you present a measurable solution which the client will always feel safer to go with!

The major salient feature of the ROI system is that you’re able to convey how much value will be created through your solution over a period of time. This shortens the sales or business cycle. The buyer actually realizes the gains after a period of time which makes sense to any negotiating party.

Note- If you show your solution’s ability to give a payback within less than 1 year, the buyer will usually allot your funds from his operating budget than the capital budget. This requires fewer approvals and shortens the business cycle. Also it’s easier to close!

Stay tuned for my next article on How To Identify and Strengthen The Financial Benefits of Your Solution?

Till then you can browse through useful business and management related articles to get useful tips to enhance your business related skills and management efficiency.

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