If I were selling a tool you could use to earn more money, pay less for things you buy, and get your way more often, would you be interested?
I hope so.
Fortunately, I’m not selling anything. This tool is free; it’s called negotiation.
In the United States, we don’t haggle over prices as is commonplace in other cultures. But even in a fixed-price society, opportunities for negotiation abound. I asked my focus group for positive results they’ve achieved through negotiating. Here’s just a sample:
- Before I started a new job I asked if they could offer me more and they raised my starting salary almost $2,500. Had I just accepted their offer I would have missed out on what amounts to more than an extra mortgage payment for us.
- I’ve had fees lowered or removed from bank accounts.
- I have negotiated lower rent (both starting rate and yearly increases).
- I’ve gotten better deals on a car and things I buy on Craigslist.
- I have received a better credit card interest rate and I have received a hotel upgrade.
One reader got a $2,500 simply by asking: “Is that the best you can do?”
Consider this: Annual raises are typically a percentage of your salary and it’s often easier to negotiate salary before you’re hired. That means even a small bump in your salary when you’re starting can really add up.
Assuming a 5% average annual raise, $2,500 more in starting salary translates to an additional $81,000 earned over 10 years and over $300k in 30 years. A more liberal example shows that a 30-year old MBA who negotiates a $10,000 higher starting salary and invests the salary differential would earn an additional $1.6 million by age 65.
WHY WE DON’T NEGOTIATE
Lots of us don’t negotiate even when we know we should. As a group, women are especially guilty.
Whether we realize it or not, we don’t negotiate because we’re afraid. I asked readers to describe the reason they don’t negotiate more often. Here’s what they said:
- I’m afraid of looking ridiculous.
- Too afraid to lose an opportunity.
- Because (I’m afraid) most of the times the other person becomes stubborn or defensive.
- I am afraid I am the less knowledgeable person in the situation at hand.
- I feel that I might come across as pushy, but more often it is because it is so stressful to do.
- Generally afraid of being shot down. Hard to take rejection.
- Set pricing too often (you don’t really walk into Home Depot and say I’d like to pay less for that paint). Might even get laughed at.
- I prefer to avoid the potential to offend/anger the other party involved. I know that I am personally capable of engaging in a controlled and respectful negotiation, but it’s difficult to predict how a stranger will react in the same situation.
See a trend? Whether they used the word “fear” or not, all of these are fears. We can categorize them into three categories:
- Fear of rejection. (Hearing “no”.)
- Fear of being judged. (Having the other person think you’re pushy, ridiculous, an idiot or that you don’t know what you’re doing.)
- Fear of losing the opportunity.
Only one of these fears is rational: losing the opportunity.
The others, however, are irrational fears. Nobody wants to hear “no”. We don’t want to hear “no” from somebody we ask on a date and we don’t want to hear “no” to a raise request form our boss. But hearing “no” isn’t the end of the world. Nor is having the other person think you’re pushy. As long as it doesn’t cost you the opportunity, these things might matter it our head, but not in reality.
Before you think that I’m trivializing these fears, let me tell you that I understand them all to well. You see, I’m an introverted guy, bordering on shy. Mingling at a party or approaching a stranger on the street terrifies me. I see a therapist to help me get over social anxiety in many situations. So it’s only natural that negotiations frighten me, too.
In spite of all this, I somehow spent several years working in sales. Although the work made me miserable (I suspect it contributed to needing therapy), I got to be pretty good at some aspects of the job, including negotiation. Like a lot of shy people, I still have to “psych myself up” even before something simple like calling the bank to remove a fee. But I’ll do it, and that’s what’s important.
Getting over your fear and simply asking for what you want is half the battle.
If you’re introverted, shy, or have social anxiety like I do, the techniques I’m going to talk about may not be enough to get over the fear of negotiating. In addition, you’ll want to work on fear that holds you back.
You can do this with the help of a therapist or by researching cognitive behavioral therapy (CBT) techniques to address the illogical thinking. An example: “If I ask my boss for a raise, he’ll say no and he’ll hate me because I asked.” In reality, you don’t know what your boss will say (a hunch is not a fact). And even in the rare chance you offend your boss by asking, he most likely will not change his opinion of you as an employee simply because you asked for a raise!
When irrational fear holds you back from doing something, try to overcome it by deconstructing irrational thoughts with facts and reality.
A SIMPLE EXAMPLE OF NEGOTIATION
Today I’m going to give you seven techniques you can use to become a better negotiator, but let me assure you, this is just an introduction. Before we dive in, let’s look at a classic negotiation example.
A man walks into a pawnshop to sell a guitar that’s worth about $500 to the right buyer in mint condition. The seller hopes to get $350 for the guitar but will start bargaining at $450. The pawnbroker looks at the guitar. It has a few chips on the paint. He also knows he already has a couple like it in inventory and they take a while to sell. He figures he could only sell it for $300 and wants to make a $100 profit. He offers $100.
The seller is insulted. “$100! That’s a $500 guitar. I need $450.”
Both parties start at prices that are more or less what they’re actually are willing to settle on. Neither expects the other party to go for their initial offer (but if they do, great!)
These starting prices are known as anchors. They fix your mind on a particular condition (price) to which you’ll compare future conditions. If you’re trying to sell your guitar for as much as possible and the buyer opens bidding at $100, anything that’s more than $100 will seem like a better deal—even if the offer is $200 and you hoped to get $400.
You’ll want to practice setting firm anchors (for example: “I think $80,000 is a reasonable salary”). You’ll also want to be aware of other people’s anchors. The sticker price of a car is an anchor. To an uneducated buyer looking at a car with a $20,000 sticker price, $1,000 off might seem like a great deal! But if the dealer owns the car for $15,000, $19,000 isn’t a deal at all.
This is classic negotiation. Each party drops an anchors and works towards an agreement in the middle. It’s somewhat adversarial—each party is trying to get as much as possible and give up as little as possible—but in simple bargaining, it works. But what happens when the topic of negotiation is more complicated than the sale of a used guitar? How do you negotiate the compensation package, a consulting contract, or the purchase of a home?
Whether you’re simply asking for a better hotel rate or trying to win a raise, the following seven negotiating tips will help.
SEVEN TIPS TO NEGOTIATE BETTER
1. Start by asking for what you want.
As I said earlier, half the battle is working up the courage to ask for what you want, such as: “Is that your best rate?”
I learned a ton from my former boss. He was a persuasive salesman, a visionary CEO, and a motivational mentor. And he was an incredible negotiator.
As a pedestrian example, when we were travelling, every time we checked into a hotel or rented a car, he’d look at the rate and ask the clerk “is that the best rate you can do?” If that didn’t work, he’d say “We’re in town for business with XYZ company. Do they have a corporate rate?”
About half of the time the clerks would just say: “That is the best rate, I’m sorry sir.” But about half of the time it would work! In one case, he saved $30 a night on two hotels rooms for three nights—$180—simply by asking.
Where his true skill lay, however, was negotiating complicated six-figure technology contracts. In most of the deals we worked on together, customers always balked at something—the overall price, the payment terms, the consultants’ hourly rate, you name it. But never once did he concede things that mattered most to our business: the product price, our consulting rate, or getting paid at the agreed upon times. How’d he do it? By using the second technique.
2. Understand what the other person wants.
After asking for what you want, you must listen to what the other person wants. You have to listen. And I love this, because if you’re shy like I am, listening comes more easily than talking!
The reason listening is so important to negotiating is that you need to really hear what the other person wants—his desires and their fears.
You can ask him, of course: “How much do you want for this guitar?” And he’ll say: “$500.”
The problem is, most of the time the other person doesn’t even know exactly what he wants, or what he’s afraid of. He couldn’t even tell you. But by listening and asking the right questions, you can start to figure this out and infer where he’s flexible. As you get to know the other person you might learn: “I’m selling this guitar because I need $300 to fix my car.” And: “I saw this guitar new online for $500 but I don’t know what it’s worth used and am afraid of getting ripped off.”
If the pawnbroker can offer $200 max on the guitar and doesn’t understand the seller’s true needs and fears, chances are the two won’t make a deal. But knowing this information, the pawnbroker can do more. First, he can show the buyer similar guitars for sale in his store or online, explaining that they sell for $250-$300, and in order for him to make a profit, he can offer $200 tops. Second, he can offer alternatives to help the seller meet his needs. “If you need $300, do you have anything else you can sell? I really need power tools right now so I’ll pay a good price on them.” The seller might have a garage full of old tools he’s not even using that he could sell one or two for the extra $100 he needs.
3. Demonstrate your value.
This is salesmanship 101, but many of us haven’t had the, uhm, pleasure, of working in sales.
If you’re trying to get something from somebody else, you need to give them good reasons to give you want you want. You need to create value for the other person. Specially, you need to show them how giving you what you want will benefit them.
In our example, the seller of the guitar has to show the pawnbroker that his guitar is valuable and worth buying (and for more than he was inclined to offer). He might do this by pointing out that this particular guitar is a rare model that has extra value to collectors, increasing the value by $100 or so.
If you’re negotiating for a raise, you need to do the same thing. You need to demonstrate value to your employer, explicitly showing your boss how you save or earn the company money.
4. Stress shared goals.
You can reduce the risk your negotiations will fail to end in an agreement by emphasizing things both you and the other party stand to gain rather than taking a “me vs them” position. You might remind your boss, for example, that a raise will be a well-deserved reward for your ongoing hard work and commitment to the company.
This is easier done in certain situations. When negotiating the sale price of a guitar, for example, a $50 loss by the seller is a $50 gain by the pawnbroker. They’re dealing with a fixed pie that can only be sliced in so many ways. Still, both parties want to make a deal, and this is often enough to keep the negotiation moving.
The more complex the negotiation, however, the more opportunities there are to find common ground, even if you have to make some up. The authors of Getting to Yes: Negotiating Agreement Without Giving In (probably the best primer on negotiation available) call this “inventing options for mutual gain.”
If you’re asking for a raise, perhaps your boss think you deserve one but is worried about the work involved in submitting the paperwork to HR and justifying the expense to the CFO. You might find ways to make this process easier for your boss, like coming prepared with a list of ways your efforts have made or saved the company money.
If you’re trying to unload a piece of furniture on Craigslist and are haggling with a buyer who wants to give you $50 when you’re asking $100 because he has to rent a pickup to come get it, you might offer to deliver it if he pays $75.
5. Know your best alternative to a negotiated agreement (BANTA).
The reason you negotiate is to produce something better than the results you can obtain without negotiating…[Your BANTA] is the standard against which any proposed agreement should be measured.” (Getting To Yes)
For example, if you’re offered a job with a salary of $30,000 but really wanted to earn $40,000, you need to go into the negotiation knowing at what point you’ll walk away. If you can’t get a $40,000 salary, what’s your best alternative? If your BANTA is to continue your job search, it’s not very strong and you’ll probably take the job even if they don’t meet your salary request. But if your BANTA is another job offer paying $38,000, you have a stronger hand.
The better your BANTA, the stronger you can be in negotiations.
Good negotiators leverage their BANTA (for example, a competing job offer), but you should be careful to do this in a way that shows value and doesn’t come across as a threat. For example: “I believe $80,000 is a reasonable salary because of my three years experience and because a competing offer I received from Company XYZ is in that range.” Contrast that to: “If you don’t pay me $80,000, Company XYZ will!”
6. Know your market value.
It’s difficult to negotiate something of value if you don’t know where you fall in the market. This is why the Internet has shifted so much of the power in car buying negotiations from the dealers to consumers—competitive auto pricing is readily available online.
The same thing is true with salary negotiations. At the minimum, come prepared with salary ranges for your position, experience level, and city. Using those ranges as a starting point, be prepared to defend your desired salary if it’s on the high end or above the range (again, delivering value and offering benefits).
7. Shut up!
In negotiations, silence is golden. One of the biggest negotiating mistakes people make is not knowing when to shut up. As soon as we’ve asked for something, the little neurons in our brain responsible for fear go haywire. So we talk because we’re nervous. Not only does that show we’re nervous (and maybe weak), we may even offer concessions before the other person pushes back.
Sometimes the hardest thing to do is to simply be silent.
When I worked in sales and had to present a prospective customer with a price quote, I instinctively wanted to immediately begin explaining it. But that only made it look like I was trying to justify the price rather than letting the value of the product speak for itself.
I learned to give them the quote and be silent—often for several minutes! It’s not a comfortable situation, but it conveys confidence, both in yourself and the value you bring to the deal. Even slowing down when you talk and inserting small pauses can have an effect.
Negotiation is a skill that can both save you money and earn you more money (sometimes, lots of it). Unfortunately, due to American cultural expectations and our fears, many of us don’t negotiate when we should. We can overcome this reluctance and fear—even if we’re shy—by 1) identifying irrational thoughts and focusing on reality and 2) learning and practicing a non-adversarial approach to negotiation that attempts to identify and focus on shared interests.
WHERE TO GO FROM HERE
Negotiating is an art, and you can easily devote days, weeks, even years to its study. (Indeed, top dealmakers and attorneys spend years learning and perfecting their negotiating skills.) If you want to delve into negotiating skills beyond this post, I recommend Getting to Yes: Negotiating Agreement Without Giving In—perhaps the most popular accessible book on the subject. Getting To Yes teaches non-adversarial negotiating methods you can use in almost any situation to get more of what you want more often. I also found useful these slides on negotiating a job offer by Erica Dawson, assistant professor of organizational behavior at Yale.
What about you? Have you struggled with negotiating but overcome your fears or reluctance to negotiate? How did you do it? And how did you benefit? Have you learned any negotiation techniques that have proven especially valuable? Let us know in a comment!
Want more powerful ways to earn and save more money? Join over 11,500 other successful readers on my FREE email list now.