How should I respond to requests for concessions?
Whether you’re buying or selling, how you respond to requests for concessions will depend on the amount of alternative options you have. If you’re a seller, it wouldn’t make sense to agree to a concession if you have better offers on the table for what you’re selling. If you’re a buyer, it wouldn’t make sense to increase your offer if you could buy a similar product or service elsewhere for less.
In deciding how you respond to requests for concessions, your starting point should be knowing what your alternative options are. This way, you can always compare current offers to those alternatives. Even if your alternative is not buying or not selling, assessing the opportunities and costs with that alternative objectively, will help you decide how flexible or not flexible to be in the negotiation.
You can be receptive to requests for concessions so long as you’re negotiating a deal worth more to you than your alternative options. The challenge then becomes ensuring that that flexibility does not come at a substantial cost to you. Instead, that flexibility helps you close a deal that you wouldn’t otherwise be able to close.
Look for Tradeoffs.
There’s a fear that implying you are open to negotiating is metaphorically similar to opening a can of worms, and hence should be avoided all together. The problem with this approach is that it often comes at the cost of you missing out on opportunities. Also, that approach assumes that negotiating means compromising. That doesn’t necessarily have to be the case.
There are creative ways you can structure agreements, where instead of either the buyer or seller conceding, they find tradeoffs on issues that drive them towards agreement. Here are a couple of examples of how this can work.
- Breakdown the Different Parts of your Offering: A seller selling their manufacturing company drops their asking price by 25%, but keeps some of the equipment to sell to another buyer as the current buyer has no use for that equipment. This puts the business price in the budget range that the buyer is ready to spend, without the decrease in the asking price costing the seller money. Ask yourself, are there any components to my offering that the buyer is not interested in? Could removing those components from the sale decrease my cost and my asking price? And would doing so help drive me and the buyer towards agreement?
- Increase Order Size: A business that sells retail goods decreases the price of each product by 7% when the buyer doubles the order size. The decrease in price does not cost the seller money because the increased order size means less shipping and stocking costs per item. The tradeoff of lower price per item but double the order size results in the seller getting a sale with a healthy profit margin, and the buyer meeting the price point they want.
- Be Flexible with Payment Options: A distributor agrees to increase invoice due dates from a 30 day period to a 60 day period in return for the retailer agreeing to purchasing their inventory exclusively from that distributor. The tradeoff of additional time to pay allows the retailer increased time to sell the product and profit, while allowing the distributor to increase their order size.
There are plenty of ways you can respond to requests for concessions, without necessarily having to give a big portion away. Being flexible can take the form of trading on issues that don’t matter to you, but matter more to the other person. Tradeoffs are a good negotiation strategy that can communicate flexibility, help drive the discussion towards agreements, and help both people explore and brainstorm whether they’re a fit for each other.
You’ve traded off aspects that don’t matter to you, and they have responded positively. Still, there’s some they’d like for you to compromise on. If you’ve arrived at this crossroads in your negotiations, there are a couple of tips you should keep in mind to ensure that those compromises are fair, and will bring the conversation towards agreement.
If you do compromise, do not do so too quickly in the negotiation. Compromising immediately before a thorough discussion and back and forth has been established may undermine your credibility and communicate to your counterpart that you didn’t believe your initial ask was reasonable. If you do concede on price or on other aspects of your business, concessions are best when they’re done in installments. Research shows that the same concession broken up into two concessions (ie. $10,000 vs $8000 then $2,000), is more likely to be received positively.
Additionally, concessions should be labeled and communicated. Compromises should not come at a substantial cost to you, and be used to help you close a deal. To ensure that is more likely to happen, communicate to the other the fact that you compromised, and the costs associated with that compromise to you. Doing so will encourage the other to reciprocate, and guide the conversation closer towards agreement.
Requests for concessions can be denied, dealt with by using tradeoffs, and done strategically to find the right agreement. In my next article, I’ll explore how you can ensure that your negotiation counterpart is trustworthy.