How to Make Negotiating A Company Wide Skill?
Negotiating is often a “forgotten” strategy to increase profit
There are two important principles in negotiation:
- Every figure is a negotiation point. Volume, price, delivery date, marketing support, commission, listing fee, contract period, quality, number of displays, weeks of promotion, number of SKUs in folder, GRPs, temperature, PR fees, speed, distance, risk, fuel price, starting salary, you name it.
- You can always renegotiate a deal.
If you add these two principles, the sum could result in a substantial amount in favor of your bottom-line, since negotiated gains almost always go directly and one-on-one to your profit.
(Remember: profit = revenue – costs. If we lower the costs by negotiating a better deal, etcetera).
Negotiating should be a second nature, for everybody.
Why? Because it reflects a company’s respect and understanding for the value of money.
Not only the sales people should get trained in negotiation and go to negotiation classes, but every marketer, logistic manager, finance director, IT expert, GM and HR manager within fmcg should master negotiation. Too often I notice a complete disconnection between an agreed promotion and the consequence of paying €250.000 to a retailer. Without any condition or agreed ROI. Or a deal with an agency based on hours rather than a clear specific result. Or a software purchase for 150 licenses without any volume discount, improved service contract or reduction for longer term usage. Or a “regretted loss” because HR failed to grow the value of the negotiation by including more opportunities.
Personally, I think people have no clue how €50.000 looks like, feels like, smells like or sounds like. An account manager at one of my clients suggested once to demonstrate the value loss of a poorly agreed promotion by buying 3 brand new Smart cars, park them in front of the office and then smash them to parts with a hammer. Just to show how they were destroying value. I’m not sure if it would be the right way, but for sure this would have some impact!
How would it be if all managers felt comfortable negotiating and were doing this consistently?
Imagine negotiating becomes a company wide skill, practiced by everybody. What could be an effective approach to achieve this? Here’s one example.
1. After introducing the concept, first start with creating an understanding for the value of money. Arrange with a local bank branch to bring €100.000 in cash, including security J. It could be any other relevant amount, but at least 10% of the total budget responsibility of a specific function/manager. Let people look at it, feel it, smell it, and listen to its sound. Have a money counter to count the bills and play with it. You get the idea.
2. Start with all the existing deals and contracts. Sit per team or department and look what gains could be realized by challenging every substantial contract or deal. Of course each function or department works with different figures and will therefore have different negotiation opportunities. Cross functional input can do wonders in this stage by challenging the “untouchable deals”.
3. Select the key opportunities and re-negotiate the deals (I realize this sounds like a short cut, but there a enough negotiation trainings available to become an expert). Celebrate each success and make each gain visible, including the bottom-line effect.
4. Once people have gone through this experience, negotiating will be much stronger integrated in future discussions and deal-making. One step further could be to make it part of a person’s development plan.
One final remark
The question arises if you should really negotiate everything, always. And of course, how to negotiate in a professional way? As a company you are in the market for the long term, and you have to deal with long term supplier, agency and customer relationships. Negotiation is therefore not a win-lose or power game. You should negotiate because you respect the value of money. Not because you want to squeeze the best deal out of a supplier.
After the Negotiation Intensive we decided to bite the bullet and to re-negotiate the deal. Although everything was already prepared and printed, we told them that canceling the promotion would be cheaper for us than continuing it under the current conditions. They understood and lowered our maximum investment to 20.000 magazine contracts (instead of 120.000). This saved us €663.000. Besides, instead of paying an invoice, we agreed to barter our investment of €159.000 for media value, which resulted in an actual total investment of around €70.000. You can imagine we’re very happy with this!
– Key Account Manager FMCG Company
