Successful negotiations are the cornerstone of business success. Whether it’s a small business deal or a major merger, negotiations are the means by which two parties reach an agreement. However, a successful negotiation doesn’t happen by chance. It requires preparation, strategy, and skill.

To ensure you’re fully prepared for your next negotiation, read more on the 10 Critical Steps for Negotiation Preparation:

1. Assessing your Leverage
2. Identifying the Issues
3. Setting Targets
4. Deciding when to disclose targets
5. Developing a Strategy
6. Putting Negotiation Issues in order
7. Contingency Planning
8. Deciding on a location
9. Developing your negotiation worksheet
10. Practicing the negotiation

Let us define steps 1 and 2:

Assessing your Leverage

Leverage is something intangible. Think of a traditional scale that balances objects on opposite sides. Imagine some unseen force that makes one side heavier, pulling the other side in its direction. That is what leverage is. Something that gives you extra powers of persuasion that allow you to influence your counterpart’s willingness to agree to terms that are favorable to you.

You have more leverage if:
• Time is not a constraint
• The purchase is a large order for the supplier
• Your organization is widely recognized
• You have multiple alternatives to consider, increasing your bargaining power.
• The supplier has no relationship with your organization
• Your supplier sees additional opportunities

The following is a tool to help you understand your leverage, limitations, and opportunities.

Table 1, Assessing Leverage Matrix

Note: Scores 0 to 2 suggest Low Leverage, 3 to 4 is Medium Leverage, and 5 to 6 is High Leverage.

Identifying your Issues

Negotiation issues are those aspects of a relationship that lend themselves to negotiation. You probably won’t negotiate every single issue as the supplier is sure to propose some reasonable terms. In some cases, the financial benefit you would get by achieving a more favorable term may not be worth the cost of your time negotiating it.

Common issues that are negotiated include:

• Price
• Delivery date
• Warranty
• Payment terms
• Maintenance, support, and service
• The length of the agreement
• Cancellation policies

Table 2, Negotiation Issues Matrix

Note: The Negotiation Issue Priority(NIP) with the highest value (20 in this example) is the issue with the most significant impact on your organization. In the example above, quality, payment terms, and length of the agreement are not critical issues. You should focus your negotiation strategy on price, delivery frequency and accuracy, with the delivery frequency selected as your primary focus.

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Recommended Reading

• Negotiating Tactics
• Top Competencies of Procurement Professionals
• Supplier Risk
• Whitepaper Wednesday: Dealing With Performance Issues

Recommended Courses

• 7 Steps for Negotiating Optional Procurements
• 8 Bad Negotiation Assumptions
• Championship-Caliber Negotiation Preparation
• Making the Right Negotiation First Impression 
• Negotiation Checklist

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