Negotiation Revisited

There are good negotiators who are not necessarily good salespeople but you will not find a truly good salesperson who is not also a good negotiator. That’s because sales and negotiation are two sides of the same coin.

As closely connected as these two processes may be, negotiation, if necessary, should begin only after an initial commitment has been reached with your prospect.

Consequently, don’t get dragged into a negotiation unless you have reached agreement in principle to do business together. That’s the purpose of the sales process.

In my negotiation training programs, I stress that all negotiation is based on power, whether real or perceived. A carefully executed sales process will establish what degree of power you possess as you enter the negotiation process. If you have positioned yourself and/or your services in a manner that creates an image in the eyes of your prospect that he/she cannot walk away, you have a powerful negotiating position.

Since the prospect believes they cannot walk away, they will be negotiating from a weak position, a position of need.

Remember

In negotiation, need is death, want is life.
Jim Camp

The best example of need and the negative leverage it creates in negotiating is the recruiter who believes they must make the sale.

This belief will make them accept just about any concession the prospect requests from discounted fees, to an extended guarantee and unrealistic payment terms.

The best defense against the negative effect of need is the establishment of a BATNA. In negotiating cycles, this acronym stands for “Best Alternative To a Negotiated Agreement.” In other words, what is your back-up position, your “line in the sand” from which point you will no longer negotiate? Your BATNA gives you the ability to walk away from the deal if acceptable terms cannot be worked out. Ultimately, in addition to your prospect’s need, this is your real source of power when negotiating.

In the July 2009 issue of this publication, Dave Staats (Pinnacle Perspective) stated, “There are almost NO programs on pure negotiating theory sold to our industry.” Whether or not this is true, I don’t know. I can only speak to my own training programs on this topic. That is why the editor suggested we rerun the following article from the July 2007 issue. My above commentary serves as an introduction to this article.

Do You Negotiate or Surrender?

Does this set of circumstances look familiar?

An experienced recruiter markets a management candidate to a company that is not a client. The company agrees to interview the candidate but negotiates the recruiter’s fee down from $30,000 to $20,000. There is no signed agreement.

The company evaluates the candidate and decides to make an offer. At this point they call the recruiter and tell him they plan to issue an offer. However, they will only hire the candidate if the recruiter agrees to the following payment terms; $6666.66 paid after the new hire has successfully completed 30 days of employment, $6,666.66 paid after successfully completing 60 days of employment, and $6,666.66 paid after successfully completing 90 days of employment.

The recruiter agreed to the terms, the placement was made, the candidate has been employed now for over 50 days and the recruiter has yet to receive the first payment.

The recruiter’s comments were, “I did the best I could at negotiating with this client. But after the fact, he had me over a barrel and I agreed to his terms of payment. I figured that $20,000 spread over 90 days was better than nothing.”

Since many recruiters almost on a daily basis encounter circumstances that are similar to this situation, let’s take a closer look at exactly what happened and why it happened.

First, there is the confusion between effort and value. Many recruiters have a difficult time justifying their standard fee when marketing candidates. After all, it’s not the same as completing a comprehensive search process. That’s true but has nothing to do with deviating from your standard fee schedule.

Remember

Any time you allow a client to compare the effort you expend on their behalf with the size of the fee, you will probably lose.

Ultimately, the cost of your service must be justified by the positive impact the candidates you place have on the performance capacity of your client’s organization. And this has little correlation with your effort.

Prior to marketing a candidate, you need to determine whether or not that candidate can bring enough value to the targeted prospects in order for them to justify paying your full fee (See my article “Add One Placement Per Month”). If not, select a different candidate, different prospects, or prepare to be compromised on your fee.

Bottom Line On Fees

What you charge for your services, regardless of the amount is a business decision that can only be made by you. However, make certain that decision is a positive reflection on you, the value of your services and lends support to the overall objectives of your organization.

Article Continues Below

In the scenario described above, the recruiter believed he successfully negotiated his fee because the client agreed to interview the candidate. In fact, he surrendered as soon as the prospect balked at paying $30,000 based on one phone call.

Negotiation is a two-way street, and in a successful negotiation, both parties should receive equal value for each concession they make, whether real or perceived. If this candidate is truly worth a $30,000 fee based on the value he brings to the prospect’s organization, then the recruiter surrendered $10,000 without receiving equal consideration.

Something else to consider is the impression the recruiter left in the mind of the prospect when he surrendered the $10,000. No doubt the prospect had one or more of the following thoughts:

  1. This recruiter does not have the courage of his convictions or belief in the validity of what he charges.
  2. This recruiter was trying to “rip me off” by asking for $30,000. This was obvious by how quickly he backed down to $20,000.
  3. If I had pushed a little harder, how much more would he have discounted his fee (The Better Deal Theory)?
  4. Does he give other employers a better deal on the fee than he gave me (always a question when you negotiate)?

To unilaterally give a concession when negotiating without gaining a corresponding benefit is tantamount to surrender. The recruiter allowed the prospect to place a value on his candidate prior to completing a proper evaluation and all the recruiter received in return was a compromised position and a heavily discounted fee, which has yet to be paid. Quite a deal.

The two articles referenced above will provide several examples of alternatives the recruiter may have utilized that could produce a realistic and equitable negotiated agreement.

Now to the second part of the problem, the extended payment terms.

After the recruiter surrendered his position on the fee, it was only natural for the client to leverage the payment terms. In the client’s mind, the recruiter would give in because he doesn’t want to lose a $20,000 fee. Unfortunately, for many Recruiters in similar situations, the client was right.

Herb Cohen, in his book, You Can Negotiate Anything, states, “In negotiating, power, whether real or perceived, is everything. If you believe you have power, you have power.”

In this situation, the recruiter does not believe he has power. After all, the client can hire someone else and the Recruiter will be out $20,000. So, instead of negotiating, he surrendered and agreed to the client’s payment terms. The recruiter’s fear of loss was greater than his desire for gain.

The recruiter neglected to consider that if the client were not truly interested in hiring the candidate, they would never have attempted to change the payment terms in the first place. They would have just simply said “No” and closed out the relationship.

The source of the recruiter’s power at this point is the client’s interest in hiring the candidate. The terms of payment are just another concession the client is trying to exact from the Recruiter. In almost every instance, if the Recruiter stands firm, even if they have already surrendered on their fee, they will achieve a better outcome.

However, the best position to be in when confronted with a negotiation of this nature is to have options. In this case, to have more than one client interested in hiring the candidate. The options then become the source of power. It is remarkable how much negotiating power you possess if you have options, if you do not NEED to make the deal.

Time will tell whether or not this recruiter will ever see his full $20,000. Nevertheless, if it served as an object lesson as well as an opportunity to realize where and how he can improve as a professional, then the experience may well be of benefit.

Negotiate if you must. But without achieving concessions of equal or greater value, you may be surrendering more than just the size of your fee. You may also be surrendering your self-respect.

As always, if you have questions or comments about this article, about negotiation strategies and techniques, or wish to receive my input on any other topic related to this business, just let me know. Your calls and emails are most welcome.

Recipient of the Harold B. Nelson Award, Terry Petra is one of our industry's leading trainers and consultants. He has successfully conducted in-house programs for hundreds of search, placement, temporary staffing firms and industry groups across the U.S., Canada, Mexico, Australia, New Zealand, Russia, England, and South Africa. To learn more about his training products and services, including PETRA ON CALL, and BUSINESS VALUATION, visit www.tpetra.com. Terry can be reached at (651) 738-8561 or click to email him.

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1 Comment on “Negotiation Revisited

  1. Nice start, Terry! I was enjoying this even before I saw my name in it 🙂
    I appreciate your pointing out that I could have made my comment a bit better in July by saying that I just don’t SEE very many programs on negotiation. Maybe my exhortation should be that our industry as a whole should spend more time on getting people to seek out programs that exist for recruiters and also for pure negotiation.

    For now, EVERYONE should read this article and those who read it and do not then want to learn more about how to negotiate probably ought to do go something else.

    Buying into the second sentence alone is worth the price of a 3 day conference. Thanks,D.

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