5 Steps to Negotiating Better Contracts
Negotiating contracts can be intimidating since we always assume that the other party has the upper hand.
Don’t psych yourself out just because the other party is operating from a larger position of strength or might walk away because you asked for too much. This is an opportunity to prove how you can provide a truly unique product or perspective in a way that brings value to their business. Here’s a few tips to boost your confidence and negotiate smoothly:
Know what the deal is worth to you AND them
Of course you know what the contract is worth to you. After all, you didn’t spend every waking moment nurturing your business just to get the short stick of the deal. However, as most successful partnerships go, a contract is the result of compromise and you need to figure out what the other party wants.
Start out with some research. What’s important for you to gain from this deal? What are your major risks? Now do the same for your potential partner. Take it a step further by figuring out how you can bring value to what they value, whether that’s in the form of keen insight or expertise. That way, you’ll know where to hedge your bets and make calculated risks in the negotiations.
Think about your needs
First, figure out what are your non-negotiable items. Your goal is to secure these items first, and any other positives are just extra cherries on top. Once you’ve figured out what are must-haves and nice-to-haves,
And get creative with what you can negotiate! Most first-timers approach contracts thinking that businesses only care about money. Sure, money is important, but are there any other creative ways you can make the other party’s life easier?
HINT: Figure out what’s hurting the other party. Brainstorm ways to alleviate that pain. For example, they might be itching for more money than you’re comfortable giving up, but do they make that up with stellar shipping costs or production timeline? It might be time to revisit your operational costs.
Listen to the other party’s needs
A big way to distinguish yourself from self-serving negotiator to a great partner is the ability to listen. Hear out what makes the other party tick -- they have a list of negotiable and non-negotiable items as well.
This is particularly useful for when you’re facing resistance. When the other party says it won’t budge on something, ask why. Figuring out the underlying reasons means you have information you can leverage to create a deal where both parties are happy.
Take your time
You’re so close to the finish line that you can’t wait to sprint across it! But hold on a second. Slow and steady wins the race, and rushing a deal is a great way to make a bad decision.
Before you put your pen to the paper, take some time to think the deal over and examine other alternatives. Do any of these options provide a better path for you to reach your overall goal? Or is the best choice just to walk away? These agreements have legally-binding consequences, so a little space can help you reassess your partnership before fully committing to it.
Always have your attorney review the deal
Once upon a time, a gentlewoman’s agreement might have sufficed and all you had to do was shake hands before you walked away happy. With the increasing trend of crying litigation when something goes wrong, you always want to put your agreements in writing. It’s the best way to prevent problems when things happen and it can save you so much time and money.
Plus, you shouldn’t underestimate the other party if they have a lot to gain from this deal too. Chances are they’ve got an attorney reviewing the contract and inserting clauses that are beneficial to them. Go through the fine print with your attorney to make sure the contract accurately reflects the final state of big issues (like price and major terms) and doesn't hurt your bottom line on the details (like remediation timelines).