#33 - Playbook: Mastering negotiation

Foreign, Everybody. And welcome to this episode of 30 Minutes to President's Club. My name is Armand Farok. I'm here with Niewski, and we're not here with a guest today. It's a playbook episode. It's number three. It's negotiations. How do you hold the line? This is the toughest part of the deal, but actually it's not because the negotiation is made in the discovery. And so we're gonna talk about four things. What do you do at the beginning of the call to make sure you don't get caught in a negotiation early? Where do you price? How do you price? And then lastly, how do you negotiate once you've given price?

Nick.

So you get on that first call. And all the times we're dealing with these customers who get on, they're like, ah, give me price. How do you prevent that from happening on day one?

Okay, so you get on the call with the customer, first call with the customer. You've gotta start from the mindset of you're there to help them and you're there to work with them. You wanna immediately get on the same side of the table. So somebody asks me, no, Nick, I need some price. I need a quote. Can you give it to me now? Definitely. There's a couple of different things that I need to know so that I can actually give you an accurate quote. Otherwise I'm just gonna be shooting in the dark here. Here's the five things that I need to know about you in order to put a quote together. And that immediately facilitates discovery. Now, there's times that the customer is gonna keep saying, nah, nah, nah, just gimme a quote, just give me a quote, just give me a quote. I've got two perspectives on it. One, you can give them a range and then say, hey, you're gonna fall in the range. Depending upon these different factors again, leading into discovery. Those factors are the things that you need to know to qualify the deal or actually put together a quote. Here's the thing, also, if you've got a customer that's treating you like column fodder, they might not actually be a good deal that you wanna spend time on. So sometimes I'll just give that person a legitimate price based on what I know about them. And if they wanna move on, fine. I've got plenty of other deals that I could be working on. What I miss.

Exactly. And this usually comes from people below the power line where they're using you as column fodder, which means they have 10 columns in a spreadsheet with all these different competitors on them and you're one of them. And so your goal in this thing is not to just give them price right away, but ideally, like, you need to figure out, like, if there's someone who can actually make a decision. In a high velocity sale, in a one call, close sale, you might want to give them price at the beginning. Right? But if it's a really complex product and you're talking to an EA or like a lower level manager, then you should not be discussing price until you have access to power. Another way to get around this is at the beginning of the call. An upfront contract will bring you very, very far. You just say, hey, naturally when you get on this call, you probably want to see the software. My guess is you want to know what this stuff costs and we'll get to all that stuff. Obviously, I have to know your business a little bit better before we even talk about price. So do you mind if I ask you some questions first? If you beat them to that, it certainly puts them at ease as opposed to them feeling like they need to pry pricing from you. So what else, Nick? Then we start to get into the discovery. Right. What do we do from there?

Well, the discovery is really critical to when you get to the end of the sales cycle and you're negotiating good. Discovery is gonna lead to you winning competitive deals, and it's also gonna make your negotiation way, way easier. So there's a couple of different things that you need to know about the customer. Let's talk a little bit about the battlegrounds that you're gonna deal with in a competitive deal. Arman, I know you have some opinions on this.

Usually there are four or five battlegrounds in a competitive deal, and you do not have to win all of them. You need to figure out which two are the most important to your customer and figure out overlay that with which ones you beat your competitors in. And so you might win a competitive deal because there's one thing that your customer really, really, really cares about, and that is the one place that you're able to destroy your competitors. And the way you do that is you gracefully steer the conversation, you steer the discovery in the direction of your strengths, not in the direction of your competitor's strengths.

So I sell an ERP system and there's about 800 different things that my product does versus what our competitors do. And they win in some areas and we win in some areas. And very rarely does a customer in my world have just one thing. That's the burning thing. That if we can do, they're gonna buy my thing. But my job is to have conversations with the customer in what we call the winning zone areas that we win over the competitors. So the questions that I ask them are related to all of the different areas that we win. Here's the thing about customer pain. It exists in a lot of different areas, regardless of what you're selling. But when they verbally articulate that pain, it becomes bigger in their world. So your goal with the customer is even if you think that pain exists and it's implied a little bit, you've got to get them to actually say it. It makes it bigger, and it makes it a ledge that you can dig into when you're negotiating and selling this thing.

Now we got to take that and decide where we're going to price. Okay. Couple different factors are going to determine where you actually price. Internal and external. Internal is what do you know about them that you learned in the disco? If you are asking questions like, oh, how are you doing this stuff today? And all you have is, they're on a spreadsheet. They're. That is not enough. You need to figure out, are they growing in terms of seats? Do they have deadlines to meet? Is their contract expiring? Have they lost customers? Have they lost people? What have they lost? What is costing them today? That is seeking them to explore you. And that is one way you can build price bottom up. You can figure out, what would it take them to do this without you or a competitor in the scenario. The second way is you need to look at what the market will give them, in other words, and external factors. And so even if they're costing themselves $20,000 a year, if the market is coming in at $2,000 per year, then you're going to have to come down a little bit.

The other thing you can do here, Armand, is it can be really challenging to ask, all right, how many hours a week do you spend on this and what do you make per hour? And let me do some quick math. You can get the customer to defend their need for a change there, and that actually builds in some value to help price this thing. What you can say is, all right, well, it sounds like you're using a spreadsheet, and we would replace that spreadsheet. Why don't you just stick with the spreadsheet? It sounds like it's not horribly broken. The customer's response to that will defend their need to change. And that defense is your ammo for where you come in at.

Exactly. And Both of these things are really going to determine where you come at in your pricing range. If they're spending a ton of money, if they're growing really fast, if they've got these deadlines to meet, you better believe you're pricing higher and in your pricing bands. If they got no movement on their team and you're selling an HR software, you're going to be in a tougher spot. If they don't have any timelines to meet, if the next time they're going to need your product is in six to nine months, then you're going to be in a much tougher spot. And that really is going to depend on like where you want to be and where your business is at in terms of where you price. But still, but still you should always be anchoring higher than where you want to land. Is that right?

Yeah, absolutely. There's a couple reasons for this. One, a huge piece of negotiation is making the customer feel like they've won. If your list price for your thing is a hundred dollars, but you know you can go down to 70 if you're not confident in your price, maybe you only make a certain amount a year and that's what your whole software is gonna cost the customer in a year. Don't let your wallet insecurity impact what you go in at. And I see AES go in with the base floor price and then they can't go any lower and they get themselves stuck because the customer, they want to look good to their boss or their board. If you're dealing with a cfo, they have a board they're accountable to and they're going to have to be, they want to be able to say, hey, I was able to bring them down 15%. Well, if you go in at the list, you're actually going to make them more frustrated than if they paid more. Armand, you mentioned pricing bands and I know you have some strategies about do you go in with the base, middle or premium package?

Here's what's tricky about packages is naturally if you explain the poo poo platter of all of the different packages you have, inevitably what happens is they see the three models of the Honda Civic and because it's a Honda Civic, they're going to go with the cheapest one. The first recommendation is you are a quantitative seller. Your job is not to just give them all of the power and have them make the decision, otherwise you'd be selling a self serve product. And so what you need to do is say, hey, there are a lot of different things that we talked about. Based on what I know about you. Do you mind if I make a recommendation of like what you guys should be doing and so get permission first and then say like, hey, here are the things that you probably don't need and push away, push away, push away. You don't need that, you don't need that, you don't need that. Here's what you told me that you guys need. Eventually you can grow into other things and that might actually still be one of your top priced packages. But because you're pushing away before you're giving them all of these other bloated features, that builds some goodwill with your customer. And then you don't get into the question and answer of, well, what's the lowest package? What's the middle package? What's the higher package? You beat them to that punch.

You've got to go in making a recommendation. And I actually learned this idea about the tears Armand from our episode with Bilal where he talked about how movie popcorn is priced. It's amazing. You go to the movie theater and you see three different types of popcorn. You've got the small popcorn, which is $6, and it's like three kernels. It wouldn't fill you up at all. You've got the medium popcorn, which is $7.50, and it's probably about right. But then the extra, extra, extra large enough popcorn to feed a family of seven is only $8, and so it's only a little bit more. And that sometimes tips the scales in the favor of going with the higher package at least. It makes me feel sick every time I go to the movies. So the idea is you make a recommendation. And I like how you're starting by saying, here's what you don't need because that immediately pattern interrupts you from the normal seller who's just pushing them to the biggest thing. You're saying, look, you could probably use these features, but you don't need this, this, this or this. I don't think those are going to help you. I think this is where you need to land. You're totally right about if you weren't making a recommendation, this could just be a self serve thing. So let's talk a little bit about now. You're at the point where you're saying what that number is and you're justifying that number. How do you do it?

A lot of people screw this up because what they do is they price and then try to explain or defend the price. You have to flip it the other Way around, you need to explain the rationale and the factors going into price, and you need to then give price and then shut up. So if you have many factors that are going into your pricing. Nick, you talk about this all the time. Ask for permission if you could explain. Because typically customers want to know the four or five things that are going to influence their price. Yes. Great. You break it down one by one from there.

Yeah, I go into all of my pricing calls and I say, hey, here's. I've got this proposal pulled up here. Usually customers ask me to talk through the five or six different cost factors that impact their pricing. Would it be helpful for me to go through it in that approach? And they always say, yes. And then you've got. In your preamble, this is similar to when you're delivering those different tiers, you're explaining what's going into this. Because if you say the number and then explain what's behind the number, the customer is instantly thinking about the number side of things. So what do you do now, Armand? You finished with your explanation and you obviously want the customer to respond with their thoughts and feelings. And I think the tendency for most salespeople is just to keep talking and over explaining. So what's your approach there?

Yeah. So once you've got alignment on, do you have any other questions around how pricing is structured? And you're now saying, I'm going to make a recommendation. You're going to say, hey, this price includes blank, blank and blank, and it's X dollars per year. Shut up. That's your first option, and that is the most common option. Shut up. Stop talking and let it get silent. Sometimes I've had 10 seconds staring. Competitions with prospects, and they know what they're doing, too. He who speaks first or she who speaks first loses. The second option is if you're not bold enough to do that, you can pull a Richard Harris and you can ask, hey, how does that feel? And then shut up. And then the third, Nick, you talk about the cardinal sin of selling, right?

Yeah. I love this. I love throwing myself under the bus to make the customer work with me. I'll usually say, all right, I've just committed the cardinal sin of sales here and I just talked at you for seven minutes explaining the factors and then the pricing. I'm going to stop talking because you probably have questions or feedback. You're giving them an opportunity to speak. Now, we've done those three things, Armand. There's going to be times you get pushback. You got customers balking You've got somebody saying, that's absolutely ridiculous or maybe even getting emotional. What's the approach there?

This next part is actually the hardest part of the negotiation. Okay. And so let's say somebody comes in, you come in at 100 grand, and they're asking you for 50. And a lot of reps, they're freaking out, they're sweating, and they're like, I can go back to my boss. And the moment you say those words, the moment you say those words, they know that you have room. And so the first thing you gotta do is you gotta act a little bit confused. You gotta seek to understand. And I would say something along the lines of, well, I sell to sales leaders every day. I sell to HR or finance leaders every day. And I've never heard it come down to that. It sounds like you had something in mind. Could you give me a sense of where your expectations were at and get them talking? And they'll be like, well, you know that a hundred grand is just too expensive. Well, what makes it too expensive? Help me understand. I feel like I'm missing something here. And nine times out of 10, they don't have a real answer.

You've got to get them to justify the reason for their pushback on your quote. And now there might be times they do have what seems like a legitimate answer. The customer might say, well, we're also looking at X competitor, and they were priced 40% cheaper than you. The natural tendency of the junior AE is to go, oh, well, we might be able to match that. Let me go talk to my boss. The way that you should respond is think through this logically. If they've got somebody that's comparable to you and 40% cheaper, shouldn't they just go with that other option? So you need to tell the customer that you need to respond and say, man, if competitor X is really giving you that deal, honestly, you should take it. Or you could say something like, well, if they're really giving you that deal, why are you even talking to me? This goes back to what we talked about in the beginning. That word why is really magical because the word why makes people defensive. And normally you don't want to put the customer on the defensive, but here you do. You're asking them to defend the reason that they're even still talking to you.

Exactly. And so the whole point of this first part of the negotiation when they balk is you're getting them to talk. You're getting them to talk to step forward. Charles. The other day, Charles Mohlbauer on our podcast, if they're not giving you a price, walk them through what's going to happen to you. He said, literally, well, look, John, here's what's going to happen. I'm going to go back to my boss and I'm going to tell my boss, you told me to say, hey, come in with our best offer. And my boss is going to look at me and he's going to say, charles, I can't help you. And that's exactly what's going to happen. And so make them give you a number first.

Yeah, I mean, I do something similar, Armand, where I give them a look behind the curtain about what actually is going to happen here. I say, look, the pricing that you have in front of you is what I have available to me now. Yes, there are certain times if a deal needs to get done for something, we clearly are able to negotiate on this, but I don't have control over that. Here's what I need to do. We have a weekly, what we call deal desk or presentation to the executive committee about customers who have particular asks. What I have to do is I have to put together a PowerPoint presentation that talks about who I've been working with, you, Mr. Or Mrs. Customer, who we're competing against, all of the meetings and demos we've had. I clearly can't go in front of them if this is the first time I've ever talked with the customer and I actually have to make a presentation to the board. This is going to sound kind of silly, but I'm going to look really, really junior and it's going to be really embarrassing if I go in And I say, Mr. CFO, they're asking for our very best price. What can we give them? And so you've got to let them know you're working with them, you want them to get a better price, but you don't have control over that and you're not willing to just put your neck under the guillotine to get kicked killed by the E Board.

Exactly. Okay, so we've gotten all the information we could possibly need. Now we got to decide if we're going to discount or hold the line. So if you are going to discount, there are a couple things you're going to want to say. Yes, I have this. Okay. The first one is you're going to want to know that there's a real case that they needed a discount. A competitors coming super, super low and their apples to apples the same. There are various business needs that are requiring them from a budgetary standpoint or from some other standpoint to get a low price on this. And they are real and you've tested them with finance or with your decision maker. There's a give for a get. Nick, what should people be looking for with the give for a get?

Well, what you're going to do is if you come back to the customer, if they say, hey, you came in at 100 grand, if you can do 85 grand, we'll sign the deal. Maybe you go back, you actually get approval from your executive board on that. When you go back to the customer with that give, if you don't ask for something in return, it makes it seem too easy and the customer then is going to want and they're going to be inclined to ask for more. So there's two things related to this. When you have a give, you need to let the customer know that this just wasn't an easy snap of the fingers. Yep, we can give this thing. I'll belabor the point. I'll go on and on and I'll say, yeah, I talked with my boss for about 20 minutes and he wasn't really understanding at first and I explained this, this, this and this. And I'll like explain it for a full two minutes. And they're like, alright, I get the point, I get the point. Okay, we're able to do it. But here's what the business is asking for in return. Because what happens is now you're asking the customer for something and they don't want to have a bunch of gives, they don't want to keep going back and forth. So what you do is you tie it to something that you want. Maybe you want them to do a case study with you, maybe you want them to sign by a certain date, maybe you want them to guarantee that there'll be a referral. So what you do is you tie those things to get them to stop. It stops the bleeding. Frankly, yes.

This needs to be the last ask. So you need to understand the full ask. Is this the only ask? Is pricing the only ask? Are they asking for payment terms too? You need to make sure that this is the last ask because then you're going to give this concession and then the next one and then the next one. And you're going to lose credibility both with your customer and also internally. So those are the three things you need to have to have in your hand if you're going to discount. It has to be a real business case. There has to be a give, forget. And it needs to be the Last ask, then there are three things that you should see when you decide to hold the line. The first indicator that you might decide to hold the line is if it's an outrageously low offer. If you're doing a hundred grand and they're coming back at 20, they need to come forward first. If they're not coming forward at all, they're digging their heels in, then they're either really, really strapped on budget or they're a bunch of liars and they're just trying to hardball negotiate. And that is when you need to hold the line or walk and force them to come forward. And if they don't, my guess is you cannot do an 80% discount. The second is if there are things that they need to meet, if there are timelines, they have to have the out the door. If they just raised their round of funding and they have to do something because their investors told them to at the end of the quarter, you must, you must hold the line because they must do something with you. And then the last one is, if you're not even at power in a negotiation, you should not be negotiating with somebody who has no influence over purchasing or over the wallet of the company. If that's going to go to finance later on, then why are you going to go and negotiate with the head of HR or someone else who doesn't have any decision making or buying power in the negotiation?

Well, what you're negotiating against oftentimes is what the next best alternative is. And if you don't understand what that is, you don't really have any leverage. So understanding that if they're just throwing a hard ball at you, well understand the next best alternative. And that timeline there, sometimes there isn't another alternative. Well, in that case, you do need to hold the line. So, okay, we've gotten to the end of this thing and now the customer is just like, it's not going to work. How do you artfully walk away from the table?

Yeah, I mean, sometimes it's best to make yourself as the rep seem powerless. You, you should never let them know that you control the power. And so Nick mentioned this earlier where he's going to have to go to a deal desk review. I will sometimes have my boss send the note personally with a kind handwritten letter that. Not handwritten, but a kind letter. I'll write it up for them and I'll help them craft it so that it comes from a different person. And then I'll follow up afterwards and I'll say like, hey, if you Ever decide to reconsider us? I'd love to win your business, but right now it's not going to work out. What else can we do to keep the door open?

I think you can say anything with a smile on your face and a positive spin to it. So maybe you can't meet the customer's ask, but you can get close. Give them that. The idea is you never want to get to the point where they're walking away out of spite. You need to let them know that you gave this thing their best shot. And then if it turns out you can't come to terms, you've got to artfully walk away from this thing. And so I know you'll say something about, like, following up in a week. What does that sound like?

Yeah, what I'll usually do is you don't want them to feel like they didn't get anything from you. What you do is you'll say, like, hey, look, I've given you a sense of where we can make some concessions. It sounds like that's not going to make it work out for us. So I've really enjoyed these conversations. I know you probably aren't going to work with us, but my guess is you probably want to talk to your team a little bit before you make the final decision. So I'm going to keep the file open for seven days here. If I don't hear from you in seven days, I'll just know that that's my cue to shut things out here. Does that work for you? Great. Now, what I've done is I've put the ball in their court. If you leave a super tough negotiation, just saying, no, we're not going to do anything from you. Literally, out of dignity, some people will not come back to you. But this says, hey, I'm letting you come back to us. And that's okay because I've given you everything I can give. So, Nick, what do you do? Once the deal is all signed, that.

Might be the best time to ask for a referral. The customer feels really good. They just want a negotiation. Say, hey, next step here, I'm going to introduce you to the implementation team. And they're going to. They're going to send an introductory email to schedule your kickoff call. I'm wondering, we've worked together for a while, and I'm not going to be the point of contact anymore, but sometimes I have customers who are curious about what the implementation process looks like or they're curious about if this thing actually works. Obviously, we've got to get this thing right for you. But if I have a customer who's similar to you or maybe also located in the Bay Area, would you be opposed to talking to them and letting them know what your experience has been like? Your relationship is at its strongest right when you've given them that last give and the deal is signed. And so, yeah, somebody else at the company could go back and ask for a referral, but this is your chance to solidify that ask. So, Armand, we hit on a lot here. There's one more kind of quick hit that didn't really fit into this episode. It's clearly a best practice to go over pricing in a proposal live with a customer. But there are times you're going to get pushed and pushed and pushed and they're going to say, no, just send it to me so I can review in advance. Or they'll cancel the proposal call if they didn't get in advance and say, I thought you were going to send it to me. And whatever reason they won't get on the call, they want to look at it first. One of the things that I'll do is I'll actually record a video of me going over that proposal and I'll send it to the customer then. Best practice here is if you can put some sort of tracker to see when the email is opened and then call that customer shortly after that email is opened or the video is watched. That way you can have as close to a live discussion as possible.

So we talked about it all. Let's do a quick recap. Beginning of the call, upfront contract. Tell them you'll get to pricing later when they're still pushing you for price. Put it in their best interest. The money is going to be made in the discovery, and how you configure your pricing later is based on what you learned. And that will determine number two, where you price. Your internal factors are what you learn in the disco. Get a sense of their timelines, get a sense of how much they're growing. Whatever the triggers are to buy your product, you need to weave your discovery questions around that. And then externally, you need to win those key battlegrounds in the winning zone against your competitors. And so you need to understand what the markets give you in terms of how to price. Do not give price and then explain it. Explain how price is structured, then give it. Then you can either shut up, ask them how it feels, or get off your soapbox and say, hey, I'm sure you have some questions for me. And then lastly, when you're negotiating you got to seek first to understand. Get them to give you a number first. Get them to sell themselves first. If you're discounting, it's got to be for a very real case, and it has to be the last ask and a give forget. And if you're holding the line, it's probably because it's just a crazy hardball ask or you're not talking to someone in power or there's no timeline or there's some timeline. They have to meet right now and you know they're going to buy regardless. And then lastly, keep it on good terms. Have your boss on the know. Keep the door open. Don't end a negotiation on bad will. Nick, how can people help us out here?

So here's the deal. If you didn't know, Armand recently moved to a new job and he's got a new buyer. And I know he's itching to get into some negotiations like we talked about here today. Armand, I know you're interested in some referrals, and if somebody makes a referral to you, here's what I'm gonna do for them. If that referral ends up working out and Armand closes a deal, I personally will send you a Starbucks gift card or a bottle of wine or a chili cheese dog and a video from me saying, thank you for helping my buddy Armand. Armand, who are you looking to speak with and how can you help?

How delightful. Well, in the spirit of 30 MPC, I'm not gonna give you a massive pitch, but I will give you the problem that we solve. And typically, when you have companies that are over 100 employees, that's really when they're starting to grow, especially as they reach 500. And one of the problems they face is when they're doing merit cycles or they're figuring out who they're going to promote, who they're going to give a 3% raise or a 4% raise or a 5% raise, it becomes a complete nightmare because they have to have a spreadsheet for every single team, and then they're sharing comp information accidentally from team to team. It's a huge compliance risk. And so what we do is we make compensation easy for each. And so if you know an HR leader, a total rewards or compensation leader, or a chief people officer, anyone like that, from employees, 100 to 500 in terms of the company size, that's my ICP. So would much appreciate a referral, folks.

Thanks for listening, everybody. Send a referral to Armand. We'll see you all next week.

Sam.