What’s a fast way to put more money in your pocket? Learn how to negotiate everything: your salary, the price of a car, or even a hotel room. Anything!
I hope so.
Fortunately, I’m not selling anything. This tool is free; it’s called negotiation.
In the United States, you 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 by 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 me.
- 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.
Negotiating can save us thousands on a new car or make you hundreds of thousands of dollars over your career.
One reader got a $2,500 raise 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 most of us don’t negotiate
Whether you realize it or not, you likely don’t negotiate because you’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 time that 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.
- 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. Let’s 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”. 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 in your head, but not in reality.
Before you think that I’m trivializing these fears, let me tell you that I understand them all too 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 as 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 the 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, they most likely will not change their 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 I dive in, let’s look at a classic negotiation example.
A man walks into a pawn shop 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 a classic negotiation. Each party drops an anchor 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.
7 tips to help you 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 traveling, 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 hotel 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 what you want. You need to create value for the other person. Specifically, you need to show them how giving you what you want will benefit them.
In my 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 thinks 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. 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.
Ways to start negotiating your expenses
Negotiating can help quickly turn around your finances or save you a large chunk of money, especially if you haven’t been negotiating in the past. Here are a few areas where you’ll likely have the most success in negotiating your expenses down.
In today’s world, loans are essentially a commodity. This means that there usually aren’t any major differences between choosing one lender over another lender other than the price of the loan.
Your mortgage is likely the biggest debt you’ll take out in your life. Negotiating your mortgage successfully could save you tens of thousands of dollars over the life of the loan.
If you already have a mortgage, your lender probably isn’t going to change your terms because you asked. That said, you may be able to refinance your mortgage to get a better deal.
If you don’t yet have a mortgage, pay close attention to what to negotiate so you can get the best deal possible the first time.
When you get a loan estimate, all of these costs should be clearly shown. You can ask the lender if this is their best offer or if you qualify for any discounts. In some cases, you may get a lower interest rate or lower closing costs.
The real benefit comes when you shop around with multiple mortgage lenders. If you get loan estimates from many lenders, you can compare them to see who is giving you the best deal. Then, because loans are basically commodities, you can take your lowest loan estimate and shop it around with the other mortgage lenders.
This is exactly what I did when I refinanced my home. Doing so saved me about $40,000 in interest over the life of my 30-year mortgage. It also resulted in getting a large credit so my lender actually paid my closing costs for me.
One easy way to get many mortgage quotes with a single application is using a loan aggregator website like Fiona. You fill out a single application and then lenders can compete for your business.
Student loans and refinancing student loans
Student loans can be another large source of interest payments in your life. Negotiating these loans is pretty straightforward. Whether you’re refinancing or getting a student loan for the first time, the best thing you can do is get multiple loan quotes.
Compare each of the loan quotes to see what interest rates each charges, as well as any fees you may have to pay. Pick the best loan offers and let them know you’ll be going with the best overall deal. Let them know the best offer you have so far and see if they’ll beat it. If they do, shop that quote around with the original lowest lender until you get the best possible deal.
Some websites allow you to speed this process up by doing the shopping for you. They’re great tools, but don’t assume you’re done after using one website. Each site may work with different partners. It’s important to explore all of your options, including lenders the website may not work with.
Other loans (personal loans, car loans, etc.)
Like with mortgages and student loans, most lenders you currently hold personal loans or car loans with aren’t going to give you a better deal on your current loan. Instead, you’ll likely have to refinance your loan to get a better deal.
When it comes to negotiating personal loans, car loans, and other types of loans, the same general principles hold true. Lenders have no incentive to give you the best deal immediately unless they think it will win your business. To make sure you’re getting the best deal, get multiple quotes from several lenders. Then, use them to get lenders to compete for your business.
Your next car
Cars, like loans, are commodities. You can get the same car from the dealer right down the street as you could at the dealer in the next town over.
Dealerships know this, but they don’t like to admit it. If you walk into the car dealership and ask for their lowest price, you probably won’t get the best deal. Instead, you have to get dealerships to compete with each other.
The last time I bought a new car, I used a simple method to find the best pricing. I first decided on the type of car I wanted. Once I had the specifications down, I emailed all of the car dealerships I was willing to drive to in order to purchase my car. I stated I was going to buy a car by a specific date and the dealership that gave me the lowest out the door price would get the sale.
It’s essential to ask for the out the door price. If you don’t, dealers may add on extra options, taxes, and fees you weren’t told about when you show up to buy the car. Make it clear that if the price is a penny higher than you’re told over email, you’ll buy from the next best-priced dealer.
Once you receive responses from as many dealers that are willing, you aren’t done. Next, take the lowest-priced offer and shop it around with the other dealers. Let them know you plan to buy the car from another dealer unless they can beat the price the other dealer offered. Continue this process until you find a price you’re happy with or no other dealer is willing to go lower.
While new cars are commodities, this is only partially true for used cars. If you’re looking to buy a used car, realize that you probably aren’t going to be able to find two cars that are exactly the same. The condition, mileage, and other factors may differ from vehicle to vehicle. Even so, the market is so large that you can easily find ways to compare car prices.
Insurance is a convoluted industry. It’s hard to understand exactly why your insurance policy costs as much as it does. Even so, you may be able to negotiate or at least shop around for a better price.
First, try calling your insurer and attempt to get extra discounts. If this doesn’t work, you may be able to lower your premiums by adjusting your coverage. That said, you should only lower your coverage if you’re currently overinsured or you choose to self-insure for the amount you’re decreasing your coverage by.
After you have your current policy at the lowest possible price for the coverage you need, you may want to shop around. If you find a lower premium elsewhere, call your insurer back and ask if they can match it. Be prepared to leave for the other insurance company if your current company can’t match the lower premium.
Health and life insurance
Health and life insurance are two other types of insurance you may be able to save some money on. Health insurance is fairly regulated, so you’re probably not going to be able to get a big insurer, such as United Healthcare, to negotiate with you to get lower premiums. However, you can save money by shopping around for the best policy.
Life insurance could allow some wiggle room for negotiation. If you buy through a life insurance agent, that agent likely receives a commission for selling you a policy. They may be willing to negotiate on parts of the policy to give you a better deal if you purchase through them. As with any other negotiation, it pays to shop around with life insurance, too.
One place to shop for health and life insurance is Policygenius. While their representatives aren’t going to negotiate with you, you can get several health or life insurance quotes with a single application. Then, you can compare the quotes to see which offers you the best coverage and overall deal.
Your monthly bills (cable bill, gym membership, etc)
Recurring monthly bills are great for the companies taking your money. It’s a reliable stream of revenue. Unfortunately for you, rates often creep up over time.
Negotiating these types of bills can be stressful if you want to keep the service. It can still be done, though. First, check to see if a competitor offers a similar service at a lower price. Then, call up your service provider.
Let them know you’ve been a loyal customer for X years or months and you’d like to continue using their service, but a competitor is offering you a lower price for a similar service. Ask if the representative can add any discounts or lower your price in another way.
If you aren’t happy with the results, you can hang up and try to get another representative or ask to speak to a person that has more power to offer discounts. Sometimes, you need to talk to the customer retention department to get the best rates.
Believe it or not, you may even be able to negotiate your everyday purchases. Whenever I’m shopping online, I always look for a coupon code before I check out.
If I can’t find one, I ask the company through their chat assistant if they’re offering any additional discounts. Sometimes, I get an even better deal this way.
Negotiating in person is usually much easier. If I see something I want in a store but it’s the last of that particular item and it has a defect or blemish, I usually ask the manager if I can get a discount. This has worked surprisingly well for me.
You can ask the cashier if there are any coupons or discounts they can apply. In some cases, cashiers add a discount to my purchase. In most cases, there isn’t anything they can offer. Still, it doesn’t hurt to try.
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.
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!