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The Art of the Deal

Friday, March 05, 2010
Make Negotiating Pay Off For Your Micro-Business
By Phillip M. Perry

Leil Lowndes decided to renovate her office last summer, figuring a larger and more efficient workspace would help improve the profitability of her New York-based speaking and consulting business.

What Lowndes didn’t figure, though, was the high cost. Although she had selected a carpenter with a reputation for excellent craftsmanship, his estimate was more expensive than Lowndes had anticipated.

“I told the carpenter I would pay his fee if he would agree to throw in a couple of additional, smaller jobs that I also needed done,” says Lowndes, author of “How to Talk to Anybody About Anything” (Citadel, 2000).  “I emphasized that because the jobs were on the same work site he could complete them easily.”

To Lowndes’ delight, the carpenter agreed. The result was a win-win arrangement.

“The carpenter received his high commission. And I got three jobs done for the price of one—actually saving me money.”

Lowndes’ story illustrates the benefits of negotiation.

As a micro-business owner you don’t have to accept the opening terms from suppliers or even demanding clients. Instead, continually look for ways to create transactions that are mutually beneficial to you and the other party.

Give And Take
Negotiating is especially important in today’s economy. While you need to get more bang from every buck, your suppliers are looking to protect profit margins by way of higher pricing. And your customers want to receive more for every dollar they spend.

Successful negotiating is more art than science, and the best way to master it is by studying some examples.

Consider this common scenario: You want to create a snappy, modern Web site for your business. Unfortunately, the top-notch Web designers are in great demand—and your favorite one wants a big portion of his fee upfront.

“It’s not unreasonable for a Web site designer to ask for some front money before starting work, but you can negotiate a reasonable amount,” says Phil Marcus, principal of The Negotiation Pro in Columbia, Md.

“Suppose the firm asks for a third of the total upfront for a new project,” he says. “A good approach is to point out that the vendor does not have to buy any expensive materials like a construction contractor does, then offer to pay 10 percent upfront. Then ask ‘can we set out a schedule of payments to occur when certain portions of the site are done?’”

Many times, says Marcus, project agreements call for payments to be made when work completion reaches
25 percent, 50 percent and 75 percent. Then the balance due is paid upon completion, minus 10 percent of the total bill for a 30-day period.

“Holding back 10 percent allows you time to fiddle with your site and make sure everything is working correctly before your final payment,” says Marcus.

The idea is to avoid a drain on your cash flow, maintain control over the quality of the service you receive, and
be fair to the vendor who benefits from your business.

Let the vendor know that if you’re happy with the job, you will order more work and put a link to the vendor's own site on your site. Also offer to post a fair appraisal on public Web sites that prospects consult, such as Yelp and Angie’s List.

A vendor will go an extra mile for any customer who promises to help improve business.

Win-Win
The win-win approach that works with a Web designer can work with any number of suppliers, whether offering services or products. Consider these:

1. Business credit cards issued by your bank

Suppose your credit card issuer spikes your interest rate, even though you are a stellar borrower. This seems to be happening more often today as a result of the turmoil in the credit markets in general and the many personal and business bankruptcies in particular.

In many cases interest rates are negotiable, says Marilyn J. Holt, a Seattle-based management consultant.

“You are in a better position if you have established a personal relationship with your banker,” she says.

And the size of the institution matters.

“Small banks and credit unions are much more open to negotiation than the big banks, which can
be intractable.”

Before you talk with your banker, do your homework. Start by talking with other merchants in your region to see what rates they’ve been getting. Then ask your banker to match them for your outstanding debt or for new debt that you incur. Take in those competing credit card offers you’ve received in the mail to prove your point.

Finally, be prepared to horse trade.

“Offer something in return for a better rate,” advises Holt. “Even if you are not in arrears, be prepared to knock the amount you owe down to 33 to 50 percent of the current amount. If you owe $1,000, for example, be prepared to knock it down to $660 or $500.”


Another dealing point: “Some banks may offer you a lower interest rate if you set up a monthly automatic payment of a minimum amount.”

What’s not negotiable? Billing cycles, for one thing. They’re set by third party transaction handlers, and your bank has no control over them.

2. Merchant accounts fees

Don’t overlook negotiations on the other side of the credit transaction: The fees you pay for a credit card merchant account.

There’s heavy competition in this field, opening the door to profitable negotiations.

Discussion points include minimum balance requirements, equipment rental rates and fees paid during inactive months.

You might also find that there can be a benefit to using one bank for your checking and merchant account.

See if you can negotiate away fees on your checking account if you keep your merchant account with the same institution.

3. Vehicle leases

“There’s lots of competition in the vehicle leasing field, so negotiations are wide open,” says Holt.

Here are some things you can offer your vendor in exchange for lower monthly fees:
  • An extension of your lease into multiple years.
  • Leasing additional vehicles.
  • Inclusion of a “leased from XYZ” sign on your vehicles.
  • Paying more months upfront. “If you pay them six months of a three year lease they are better off than if you pay only two months,” points out Holt.
In addition to lower fees, you can ask for:

  • More frequent, less expensive maintenance work.
  • Less expensive emergency service.
  • Installation of security systems.
4. Supplier surcharges

But product suppliers can pose a different set of negotiation issues than service providers.

Suppose you’re dealing with a vendor who starts adding fuel and delivery charges or other bill-fattening items,
or starts requiring COD.

“If this is a vendor with whom you deal regularly, you have more negotiating power,” says Holt. “Tell them that now you have a good relationship and you want better terms. Offer to keep them as a vendor if they move out of the COD and give you three a 3-percent discount if you pay in 10 or 15 days.”

The bigger you are as a customer, the better your negotiating position. Offer to buy more merchandise— in the current or related lines of merchandise—if the supplier eliminates surcharges.

Negotiating With Clients

Don’t overlook the other side of the business coin: It’s smart to negotiate with customers, too.

Suppose you run a cleaning service, and one of your customers asks that you cover more square footage for the same fee.

“These requests are happening more often today in the down economy,” says Marcus. “Everyone is looking to get more for their money.”

Try to develop a win-win scenario, suggests Marcus.

Tell your customer that you need to charge more for the additional work, but because you value the customer’s business you’ll give a discount after a certain amount of hours or projects.

“Maybe you offer to give the customer a 20-percent discount after X number of cleaning hours per week,”
says Marcus. “Your customer wins because of the discount, and you win because you enjoy a bigger account.”

Speak Up
Many micro-business owners won’t bother negotiating because they feel they’ll be turned down. Don’t make that mistake.

Vendors are ready to make deals in today’s tough economy. After all, they want to increase revenues and retain accounts as much as you do.

But take the right approach.

“Ask in a nondemanding way that offers the supplier something in return for whatever discount you need
to make your project work,” says Marcus.

Try to apply the power of negotiation to all aspects of your business.

“Practically anything can be negotiated,” says Marcus. “There is no reason not to ask. The worst they can say
is no.”


New York freelancer Phillip M. Perry negotiates win-win deals with his clients at every opportunity.

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