Based on the last dozen or so that I’ve helped, I’d say the average bottom line profit, for medium sized UK businesses, is less than 5%. For these businesses, getting better deals is a life saver. A two or three percent improvement in net price, or a couple of percent reduction in cost, can virtually double their annual profit, allowing them to invest in a better future. There are four ways to negotiate a higher level of profitability. How many are your team working on?
Tactical: Basic, everyday negotiating. One manufacturer I worked with got a double-digit profit improvement simply by training the sales team. Now, whenever they visit an account, they have a pocketful of “asks”. When a customer asks for discount, they don’t just concede like they did before, they get big benefits in exchange for everything they give.
Major Event: Step-changing specific relationships. A major set-piece negotiation can really turn the dial on a specific relationship. It can take several weeks and will have multiple phases: preparation, contention, escalation, conciliation, resolution; each of which needs careful planning. To learn more, read Perfect Storm or the Trading War series.
Strategic: Transforming a relationship over time. This is where you set long-term goals for a customer or supplier, like increased profitability, dependency or quality of relationship. From then on, every trade, every negotiation, every conversation, is just a stepping stone in the longer journey. For one client, this meant shifting a buyer from annual tenders to long term collaboration on a whole range of opportunities. For more on strategic negotiation, read this.
Portfolio: Re-shaping your whole business.In sales, this means ruthlessly shifting your time and investment into profitable accounts with greatest potential: growing those you have, and finding more like them. In buying it’s about re-specifying, commoditising and re-sourcing, finding the best partners and offering them bigger, more predictable volumes. One retail client saved over 30% by moving all their aerosol products, across a dozen different categories, to one single supplier.
BOTTOM LINE: When most people think of negotiation they think tactical; the one-off deals. But business isn’t like that. Most deals are just the punctuation in the story of a relationship. Master punctuation, sure, but then start writing the story the way that you want it to go.