On a scale from rocky to rough, how smooth are your enterprise sales negotiations? When nearing the suspenseful closing phase of a large sales negotiation, tensions typically run high. Depending on your relationship with the prospect in question, you may know very little about how they operate, negotiate, and maintain relationships post-sale. Combine that with your own internal metrics of how you are compensated or incentivized (net new logos, revenue targets, pipeline velocity, win-rates etc.) and you have the perfect storm for a challenging situation. The bottom line is you will do anything it takes to “win”.
I place “win” in quotation marks because it’s a common misconception that there are winners and losers in negotiations. This notion should be thrown out the window, preferably from the 40th floor or above. The goal should be to strike a deal where both parties walk away feeling good. No one likes feeling short-changed after a smooth-talking salesperson just sold him or her on the ole’ smoke and mirrors. On the other hand, if your company is truly providing value, then you want the deal terms to reflect it; don’t leave any revenue on the table.
Whether you are a hardened road warrior who can walk into any C-level exec’s office cool, calm, and collected or are just getting called up to the “big leagues” with a seat at the table for the first time, there are two important negotiation concepts that you can keep in mind that will help you “win” enterprise sales negotiations:BATNA and ZOPA.
The first concept to learn is BATNA – This stands for Best Alternative To Negotiated Agreement.
A BATNA is your own and your prospect’s proverbial “ace” up the sleeve. It essentially means the next-best alternative that a party (buyer or seller) can pursue if the deal doesn’t go through. Your job as a skilled sales executive is to try to draw out your buyer’s BATNA to the best of your ability. This way you will know their walk-away price, which levers you can pull, and which components of the sale to pay particular attention to. If you know a prospect’s walk away price, it’s like playing poker in a house of mirrors; you can capture the maximum value on the deal.
For example, if you are selling CRM software and you are vendor A, it’s likely that your prospect is also considering CRM software vendor B. If the prospect already has a price quote for vendor B, then that price quote will be their BATNA which allows them to walk away if you, as a seller, prices too aggressively.
Regarding BATNA, it may seem like the buyer only has a BATNA and subsequently has all the power here, but in reality, top performing sales executives carry their own BATNA into every negotiation, seek to improve it, and leverage it to get to a close. One example is if you know that you could sell to the prospect’s competitor if the deal doesn’t go through. Another example is the idea of “Firing your Customer” – your next best alternative is literally pursuing a different lead (or customer) that is more profitable, requires less service, and will get to an inked deal faster. You should signal the strength of your BATNA, but never reveal it, because then you will lose its power.
The second concept to master is ZOPA, or Zone of Possible Agreement. This concept builds on BATNA and while simplistic is often overlooked or poorly executed. The downside is that value (revenue) is left on the table, or worse yet, no deal is done.
In essence, the ZOPA is your own and your prospect’s combined range of acceptable deal terms (typically on dollars). Let’s say that you, as the sales leader, want to get a deal done in the $20,000-$35,000 range, while your prospect wants to purchase at a range of $12,000-$27,500. The overlap of these two zones is the ZOPA. In this example, the ZOPA is $20,000-$27,500 (the seller’s minimum value and the prospect’s maximum value). See image below for this example’s ZOPA.
To determine the ZOPA you will need to estimate 3 things (from both parties):
1) Target price – Your stretch goal; an optimistic but realistic assessment of the best deal you can get
2) BATNA – Your Best Alternative To Negotiated Agreement (see above)
3) Reservation price – The worst deal you would accept (this is your BATNA + Transaction Costs)
If there is no intersection, then there’s no ZOPA. When there’s no ZOPA, either you are pricing too high, or your customer is not valuing your product enough (or playing hardball), in which case you shouldn’t pursue that prospect any further – walk away. See image below for example of no zopa.
Example of a deal without a ZOPA:
The most important point with ZOPA, and negotiations in general, is that (say it with me):Knowledge is Power. You should know your own ZOPA cold AND you should seek to guard it, especially on the low-end of the range. On the flip side, you will likely have to tease out your prospect’s ZOPA during the qualification stages depending on the complexity and public availability of your pricing model and how they came into your sales funnel. I’m not going to go into great detail about how you should gather the prospect’s ZOPA, but it should be done and with greater tactfulness than flat out asking, “So what’s your price range”? and also be legally obtained.
When keeping these two fundamental concepts of negotiation in mind:ZOPA and BATNA, you can likely re-think the way you approach your deals and likely increase your win rates. There are many more tips and tricks to consider when negotiating but before trying advanced tactics, you should first master the fundamentals.
Finally, you should keep the long game in mind when negotiating with a prospect. That is to say, if you plan to have a long-term relationship with a buyer (multiple deals or multiple contract extensions over time), then you should seek to maximize the pie. Don’t negotiate too aggressively during your early interactions, because then future interactions will always carry a bitter note. Rather, seek to collaboratively arrive at a deal which allows both parties to “win” by finding out which variables are most important to each party!
Do you have any negotiation tips or tactics that work well for you? Please share them in the comments!