MDH 79 | Art Of Negotiation

 

Negotiating deals is crucial in being an entrepreneur. You must analyze and evaluate what you want and how you’ll offer that to a client so you can close a deal. Set your goals and expectations because you have to figure out the specific things your company needs. Join your host Victoria Wieck in this episode as she dives deep into the dos and don’ts in negotiating. She shares how you can optimize strategies and talk with people most effectively to achieve the process and meet your goals. Learn how to maximize value creation in your agreements and watch your clients grow!

 

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Mastering The Art Of Negotiation For Business Growth

I’m excited to share with you this episode’s lesson. It’s about negotiating mastery. Mastering how to negotiate or negotiating skills is the most underestimated skill of all skills for business owners, especially for small business owners like ourselves. If you’re a huge business, usually, you have a legal department or have access to lawyers who specialize in your expertise.

If you’re a small business owner, you don’t even know how to go and find a lawyer who understands your business. Most of the time, your business has got a special niche. There are some amazing things about your business that differentiates your business from all the big corporations. This is a skill that is a must-have for everyone who is in business or who thinks about going into business.

First of all, there was a myth that when you start negotiating, you need to hire a lawyer to negotiate because you are not qualified to negotiate or you think that your lawyer is going to do a better job. I have to tell you from my personal experience, that’s one of the worst things you could do because most lawyers are not trained as business people. They go to law school. They understand the legal lease, courtrooms, and law books, but they don’t understand your business.

Half of the time, you are calling your lawyer to try and explain what your business is all about and what you’re trying to negotiate from the other side. They don’t know anything about the other side, so then they do all this homework and bill you on an hourly basis. Before they even get to the other side, you’re looking at a $5,000 or $10,000 bill. Sometimes they want you to sign a retainer of $5,000 or $10,000 a month before they even start talking to you at all.

Even when you pay $5,000 or $10,000 a month, if they get you the deal you want or a position of strength so that all you got to do is run your business, that’s a different story. Half the time, they don’t do that. They come back with a lukewarm version of what you wanted or a few things from the list that you wanted, and the other side gets away with the rest of it because most lawyers go with a road to least resistance. That’s my personal experience.

Most lawyers are not trained as businesspeople. They understand legalities, courtrooms, law books, but they don’t understand your business.

Do’s And Don’ts About Negotiating

Having said that, let’s think about all the dos and don’ts of negotiating. I’m very passionate about this because I’ve had to negotiate some of the biggest contracts in my industry. It’s a jewelry specialty within the retail industry. I’ve negotiated deals in Japan, England, Dubai, Abu Dhabi, and in the US. I have to negotiate the biggest contracts in my life anyway at HSN and then now at ShopHQ. I’ve done business with places like Macy’s, Saks Fifth Avenue, Nordstrom, and Neiman Marcus. In every single one of them, you need to learn how to negotiate. There were all different. Each company looks for specific things and this is what we’re going to talk about here.

Here are some of the dos, and we’re going to get into the don’ts as well. The dos are to start treating the person on the other side as your business partner. I know it goes contrary to what you think. First of all, let’s think about what are we negotiating. For example, if you own a physical store, you have to negotiate rents with your landlord and hotel rooms for your employees when you’re doing a lot of traveling.

Maybe you have airline tickets. If you’ve got even five employees traveling on a quarterly basis, you can negotiate with an airline. I don’t know if you knew that or not. You are negotiating your employees’ compensation. If you’re an employer, it’s the same thing. You are negotiating with the employee, all the suppliers, customers, and outside consultants. All these require some negotiation.

Win-Win Situation

We talk about the win-win, but I want to talk about the win-win-win situation. There are three wins. There are usually three parties involved. They’re not just two parties. Let’s go to some of the examples. For example, you’re an employee and you want to get paid pretty high. This is typical in a retail or wholesale type of business, a manufacturer, for example. You might want to pay them a salary plus some bonus or commission above a certain amount if we tell that their business that they’re doing.

Let’s say that you say, “I want to get paid $150,000 base salary, plus all the travel, all the expenses, hotel room, my meals, everything paid, and 10% from everything I generate above $1 million.” That sounds good for the employee, especially if you can bring in $10 million or $20 million worth of business them. You’re making $200,000 over or above your $150,000 base salary, plus all your expense is paid. That sounds good for it. The problem is this is an expense to the employer when they bake that into the price. Instead of somebody who was getting paid $150,000, you got somebody who could make $250,000. That’s coming out of their pocket.

MDH 79 | Art Of Negotiation

Art Of Negotiation: You need to learn how to negotiate. Each company is different and looks for very specific things.

 

Ultimately, they’re going to price that into their price. I’m going to get something concrete. Let’s say I have a necklace. You’re trying to sell 50,000 pieces of it to a department store or TV station. Your cost is $50. You want to sell it to the station for $75 to cover your rent and employees. You have more than just that employee. You’ve got a secretary, a receptionist, and warehousing people. You got to pay for all of their health insurance and everything else. Let’s say, a 25% margin for that. You also have defects and all the other stuff that comes back. You want to get that.

When you do that, let’s say, this is what you want. If you’ve got an employee who would demand $150,000 plus the 10%, 10% of $75 is already $7.50. Your margin gets shrunk by quite a bit. Since you need the $25 margin to pay for everyone else in your company, you’re going to bump that price up to at least $85. Even if the customer buys it from you, the actual retail price on that instead of going at $150 is going to go at $185 or something like that. It has to sell at the store for a much higher price.

I wonder about it for a long way, but at some point, you need to make it so that your end user, the consumer, wins because they always know where to get the best buy. They always know where they can count on high-quality products at the lowest prices. They determine in the end where they shop. Let’s say you’re dealing with a department store A. This department store, even if somebody is friends with you and they say, “That sounds pretty reasonable.” If a lot of end-users don’t end up buying it from department store A, you’re going to be stuck with all this data inventory as a direct result of this one example.

Since they’re going to get fired until they get a bit of this merchandise, they either put it on extreme sale, or they call you, the manufacturer, and say, “I need some help. I need you to take this back because I can’t buy anything else. I’m overbought. My boss won’t give me any more money to buy anything until I clear this inventory out.” At the least, they will not buy from you again because they got burned. Treat the other party as your partner. You need to make sure that whatever you sell them, you do it at whatever you can to make sure that that stuff sells once they buy it. That’s your responsibility. It is their responsibility, but it is your responsibility, too.

Perspective

The second thing here is you got to do homework always. I can’t stress this enough. If you’ve read this whole series, you read this in every episode. You understand what the other side needs and wants from you in the end, what they will and won’t negotiate. If you’re dealing with public companies like Macy’s, Nordstrom’s, and TV stations, they usually have these earnings calls. Call up their investment department and get their perspectives. If you want to buy one single share of stock, you should look at their perspective. They will tell you what their goals are, where they excel, what their challenges are, and what they expect.

Start negotiating and start treating the person on the other side as your business partner

Let’s say you’re selling candles and dealing with a TV station. They say, “Our goal is to increase our soft home.” Candles would be considered a soft home. They are not like vacuum cleaners or computers that would be called a hard home. Linens and candles go into all those softer areas of your home. Let’s say you look at them and they say, “We see a huge opportunity in a soft home.” TV stations don’t do candles too well because they can’t smell and all kinds of reasons for it. Let’s say you see that in the perspective, saying, “There’s telling other investors that we’re going to focus on a soft home,” which is where this falls in.

When you start to negotiate with them, you understand that you have something they want and are actively looking for. You’ve got a much better position than if you’re looking at the prospectus and they say, “We try soft home last week and that’s where we took a huge margin hint. It’s tough, but we’re going to trim down the soft home area, specifically things that we can’t smell like candles, fragrances, or whatever.”

You’re not in a position of strength at that point. Do your homework because we all have a limited amount of time. Your customers have a limited amount of time. Why try to swim uphill? Why try to go to a place where they just took a huge hit on margins and they’re trying to clear out what they already have? You want to go to places where they’re looking for your type of product. That’s the first thing.

The second thing is they also will tell you who they want. If you listen to QVC and HSN, their earnings call every quarter. That’s all public information. You can type in Google, “Earnings Call,” every quarter. Quarter, meaning they follow the calendar year or so. Usually, the earnings call for the first quarter is sometime in April or May because they got to finish by March 31st. They do all their books and then they have called in front of their stockholders and Wall Street.

New Customers

The second quarter ends on June 30th and their earnings call is about mid-July or early August, and it goes on. Everything is recorded and published. They are legal statements. They will tell you the truth, what they did well and don’t do well with. They constantly talk about getting new customers. New customers are a huge thing for all Wall Street types of environments. They want to get new customers specifically. They want to get younger customers because Millennials have a much longer span to buy from you once they become your customer and there are more of them.

MDH 79 | Art Of Negotiation

Art Of Negotiation: Treat the other party as your partner. You need to make sure that whatever you sell them, you do it at whatever you can to make sure the stuff actually sells once they buy it.

 

Millennials are the number one buying block. When they tell you what they want, for example, where customers are Millenials. If you’re selling candles and you say, “We’ve tested all the scents. Millennials like things that are natural and fresh. We focused on that,” they listen. The buyers are trained to listen. Do your homework. They will tell you everything you need to know before you ever set your foot in the door.

These are the things that your lawyer won’t do. They don’t know. It’s not their job to know. It’s your job to know the law. It’s not their job to do market research on the type of products that you’re doing. Going back to my original conversation about hiring lawyers, there is room for lawyers to come in once you finish your negotiating. They can put it into the legal lease. That’s when you use a law.

What’s important is at the end of the whole thing, you do need to get away from this meeting what you need out of it as a small business to survive, grow, and make a profit. You need a list of things that are non-negotiable for you. For example, what’s non-negotiable for me would be to go and do a ton of business with somebody only to lose money or have the potential to lose money. That’s not good.

Make a list of things that you are not willing to negotiate because you have to understand what they are. You don’t want to go, “Let me go and see. I’m going to fill it out.” You can fill out a lot of other things, but you need to have some non-negotiables. One of those things for me was when I was negotiating my contract initially when I first went to HSN. I’m going to say this because it was the most recent big contract I’ve had to negotiate. By the time I got to the second network, the framework for what I wanted from a TV network was already done.

With HSN, both they and I had to chart new waters because they had never done a contract like mine before. There’s a whole long story as to why that is. Most of the people that I negotiated with are not there anymore because that was many years ago and the contract kept renewing. What I was proud of with them was that we negotiated with the idea that we were partners. They were interested in making sure that I succeeded in their network.

You need to have non-negotiables when negotiating your contract.

I was very interested in making sure that they succeeded as a network, even if that involves them bringing in my competitors and launching new brands that are similar to mine. I wanted to make sure that they could pay their bills, and continue to grow. The bigger the umbrella, the more people can succeed. When it comes to things like return rate, actual pricing, and delivery dates, I was willing to negotiate all of those, but what I wasn’t willing to negotiate was how much time they get to have from me.

I was a brand new mom of two children. It was within a few months after I had the second baby, plus I had my parents who still didn’t speak English and I needed to be with them. I had my grandmother who was in her late ‘90s. I’m the firstborn and I had a lot of responsibilities. I started my business to spend more time with my family. My first instinct was, “You get to have me eight times a year because that required me to get on a plane and travel.” It worked out fine, but many of you might want to have a lot more time, but I didn’t want that in the beginning. It evolved later on to a different thing.

Make sure that you understand what your non-negotiables are. The return rate is the same thing. You don’t want an open-ended return rate. You want them to succeed and be able to return some things to you, especially if it’s defective and whatnot. What you don’t want to do is say, “If it doesn’t sell, you can return everything.” What happens is then the buyer buys everything because there was no cost for them to make a bad decision. if you give them a reasonable amount of return rate, something doesn’t sell, you’re giving them a little bit of a safety net, but they then also have to work hard to make sure that that merchandise gets cleaned out pretty quickly so that you can keep buying them.

Partnership

Every decision is a partnership type of thing. Figure out what’s non-negotiable for you. Also, figure out what is non-negotiable for them. A lot of times, if you’re working with TV stations, they don’t want to negotiate air times with you. They don’t want to say Victoria, Brandon, or anybody can come in and have primetime hours because that’s all they have.

The most precious asset they have is primetime air time. They don’t want to negotiate that with you. That’s a non-negotiable for most networks. I’m not going to say all because I haven’t done business with all 40 networks around the world. In my experience with the ones that I’ve dealt with, the major ones don’t want to say, “You get to have 9:00 to 11:00 primetime once a month.” They don’t want to do that because they do 80% of their business at primetime.

MDH 79 | Art Of Negotiation

Art Of Negotiation: When you start to negotiate with them, understand that you have something they actually want and something that they are actively looking for.

 

Understand what they don’t want to negotiate with and work with it. If you do all this homework and come to the table with what you are willing to give, not willing to give, understanding before you even walk in the door what they are not going to negotiate with, you may use it to negotiate other things, but understand that’s not something they’re going to have a negotiate with.

I’ve done business with department stores, Macy’s, Saks, and Neiman’s. They all have different requirements, margin requirements, and return rates. Can you imagine if you hired a lawyer to find out what those are? It would be incredibly costly for you to do it. These are simple things you can find out by doing some research.  Talk to other people. Network with other people. Listen to their earnings calls. Call up the buyer before you get into a room with them negotiating. Homework is important.

What’s important for you to understand more than anything is what the end user, your final customer, the customer that buys your product wants from their buying experience. For candles, for example, if the going rate out there for 8-ounce candles is $15 and yours is special, if you want to charge $25 or $30, it’s fine. If you want to charge $300, understand that you got some big obstacles.

I’m not saying you can’t do it. I’m saying that if you’re going to go out that way, make sure that you understand what the end user wants because if they don’t buy it, they are not as passionate about spending $300 on an 8-ounce candle. It’s going to all come back to you. I’m using extreme examples. It’s going to end up with a lot of problems for your partner, the business you’re trying to sell to, and for you as well because their problems become your problems. They have usually 30 to 60 days to pay you, and they can play all kinds of games. You should read those contracts and the purchase orders before you get into that realm.

I hope this was helpful to you. I covered a lot of ground here. I would suggest that you go back and reread this again. Please make sure you share this episode with at least one friend. That’s how we can grow my audience and also how we grow as a community. Please review this episode if you have a little bit of time, that’s how we get judged by the podcasting industry. Thank you so much for reading. Please have a safe and happy week. I hope you make great choices. Remember, happiness is a choice. Thank you until next time.

 

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