What the Biden Putin Summit Teaches Us About Business Negotiations
The Biden Putin summit is dominating the news in mid-June of 2021. There’s a lot on the line, including security in Eastern Europe, trade, and cybersecurity issues.
Both sides have strengths and weaknesses. Take economics, for example. The US economy (measured by gross domestic product) is over 20 trillion dollars, while Russia’s economy is about 1.5 trillion. Can US can afford to spend more on defense, if needed, and that’s a bargaining advantage.
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In a negotiation, both sides are giving consideration, which means that each party gives up something. With a job offer, for example, the employer gives up salary and benefits, in exchange for the worker’s time and effort.
Business owners also need to understand and apply negotiation techniques before signing an office lease, making a salary offer, or- the biggest of all- selling a business. Here are three negotiation tools, and how you can use them in your business.
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Reserve price (reservation price)
The minimum dollar amount that a party is willing to accept. Think about the owner of a painting at an auction who won’t take less than $10,000 for the artwork.
In a negotiation with a client or prospect, you might say: “I can’t do the work for less than $5,000.” It’s a floor, a level that you won’t go below.
Setting a reserve price connects to how you position the value of your product or service. In that last three years, I have turned down more work than ever, and it’s paid off. I do business with nice people, who are willing to pay a reasonable rate for what I do.
Say no more often- talented business owners can find more business.
Small pie bias
Many people in salary negotiations underestimate the size of the bargaining zone- the range of salary that both parties are willing to accept. The concept is referred to a small pie bias. Is it a $5,000 range, or $15,000? If you bring value to the firm, it’s probably $15,000.
I’ve misunderstood this for years, because I’ve found that people are nearly always willing to pay more than I suspect. Why? Because as I raise prices, I rarely get someone who says: “Well, I can’t pay that rate.”
If you’ve talking with a prospect, they may push back on your rates. However, existing clients may be perfectly fine with price increases over time. We all experience higher prices as consumers, after all.
How do you learn about the bargaining zone? Ask your peers and others in your industry about their pricing and negotiation strategies. The more industry knowledge you gain, the better you can estimate the bargaining zone.
Zone of possible agreement (ZOPA)
What needed is to find is the zone of possible agreement, or the range within which a deal can be reached. Think about a company sale, for example. The seller says: “I can’t accept less than $15 million”, but buyer doesn’t want to pay more than $13 million. Maybe the parties can tweak the negotiation and come up with a price range between $14 and $14.5 million.
Negotiations are important, and you can benefit from an expert.
Ask for help
Biden and Putin are surrounded by dozens of experts- specialists in negotiation and public relations. Don’t hesitate to ask a trusted advisor for help.
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Good luck!
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/