5 important business negotiation strategies

Whether you’re the supplier or buyer, it pays to know how to negotiate. Luckily, you don’t have to be nasty to be good.

A small business owner having a business negotiation with a supplier

No winners or losers

Business negotiation is a world of contradictions. You’ve got to be firm but flexible. Open and sharing, but a little cagey. There’s a lot to get your head around. But your state of mind might be the most important thing. Aim for a mutually beneficial outcome and you’ll find the whole exercise more comfortable. Follow these five tips to prepare for your next negotiation.

1. Do your homework

Before starting business negotiations, always do your research. You should come to the table understanding as much as you can about the company you’re dealing with – and the industry they’re in.

  • Learn the main terms and concepts they’re likely to use so you’re not confused or intimidated by jargon. But if something comes up that you don’t understand, it’s okay to ask for clarification.
  • Familiarise yourself with their products or services, their industry and their competitors. It’ll give you a sense of their strengths and weaknesses, and help you predict what’s negotiable. Social media is a great tool for this type of research.
  • Understand your position. It’s important to know what you bring to the table, and why they might prefer to do business with you. Money isn’t always the main factor. Perhaps you’re easier to work with because you’re close by or more responsive. Don’t be afraid to promote the things that set you apart.

2. Don’t be anchored

Being the first to say a number can be a good way to take control of a business negotiation. That first figure often becomes a reference point for the rest of the conversation.

Some negotiators will open with an extreme number – either very high or very low. They’re hoping the other party will be anchored by it.

If you find you have to move someone a long way from their original position – and that makes you feel uncomfortable – you’ve been anchored. It probably happened when you bought your first car.

This can be a confronting tactic and it may not suit your personal style but – even if you don’t want to try it – you should be aware of it when someone tries to anchor you. If that happens, don’t feel awkward about saying you’re a long way apart. It’ll send the message that you’re not going to be steamrolled.

3. Know where you can compromise

As a small business owner, you may need the deal more than your negotiating partner. Be realistic about that. Don’t let your pride get in the way.

Decide what you need from the deal to make it worthwhile and be prepared to compromise on everything else. You can do this strategically.

Identify opportunities to give way on your least-valued terms and communicate it clearly when you do. Don’t whine about it – just make sure your negotiating partner can see you’re moving. They’ll be more likely to reciprocate with their own concessions.

4. Aim for a win-win (be nice)

Negotiating isn’t about trying to dominate an opponent. This is business – you’re trying to find a profitable outcome that benefits everyone. Treat it that way.

A win-win mentality is scientifically proven to enhance business negotiations. When people are cooperative, their brains release oxytocin – a hormone that makes them trusting and sharing.

On the other hand, a person who’s losing an aggressive negotiation feels attacked and their brain releases cortisol. This makes them negative and potentially resentful – which harms the chances for repeat business.

Always remember that both parties can win and don’t underestimate the power of being nice.

5. Have a plan B

What happens if you both walk away from the deal? Figure out what you’ll do if business negotiations fail and ask if you can live with that outcome.

This exercise will help you decide how hard you negotiate. If you don’t have a strong position, you need to be realistic about it from the start.

Having a plan B also means you can keep moving if negotiations hit a snag. You’re never surprised. But once you have a plan B – keep it to yourself. If the other party knows too much about your alternatives, they’ll know how much they can push you.

Practice makes perfect with business negotiations

Negotiation can be tricky, which is why many of us don’t really like doing it. But if you have a small business, you probably can’t avoid it. Don’t be intimidated by it. You’ll find a negotiating style that suits your personality.

As long as you know the strength of your position and respect the other party, you’re off to a good start. After a while, negotiating will become second nature – and your business deals will be better for it.


Xero does not provide accounting, tax, business or legal advice. This guide has been provided for information purposes only. You should consult your own professional advisors for advice directly relating to your business or before taking action in relation to any of the content provided.

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