Four Modes of Negotiation
- Mike Pinkel
- Mar 11
- 11 min read
Updated: 6 days ago
Looking for a magic bullet to become a great negotiator? Good luck!
The most challenging thing about negotiating is that it depends on context: The principles that work in one situation might not work in another.
I've found that there are four different modes of negotiating:
Great negotiators read the situation, choose the negotiation mode that fits, and implement it effectively.
Here are some tips for how to make that happen:
1. The Win-Win Negotiation
This is where both sides look for ways to structure a deal so that everyone gets what they most want in exchange for being flexible on points they care about less.
The best deals are the result of win-win negotiations. Here’s an example:
A while back, I was negotiating with a very smart CFO. He opened the negotiation by asking for an INSANELY low price per seat for our SaaS product.
I could have gotten mad. He was lowballing us. There was a lot on the line.
But instead, I said "I love it!" and told him that I admired his negotiating style.
Why? We needed to be creative, not get into a shouting match. Keeping things positive kept the conversation going and kept the ideas flowing.
Then I told him that we couldn’t go that low, but that I was open to being transparent about our interests to see if we could craft something that worked for everyone.
He was game.
I shared that our priority was to get a large total deal size and to get the deal done by the end of the quarter. If he could buy a lot of seats and get the deal done by the end of the quarter, we could give him a good price per seat.
He realized that our interests were complementary: He needed a lot of seats and he could get his legal team to move quickly. He just wanted a good price per seat.
We were aligned: win-win!
Win-win negotiating only works under certain circumstances. Here’s what has to be in place:
First, the parties' interests have to be complementary. This means that you’re negotiating over multiple issues that each party prioritizes differently.
In the example above, we had complementary interests. There were three issues: (1) the price per unit, (2) the total size of the deal, (3) the timing of the deal. They cared most about the price per unit, we cared most about deal size and timing.
That put us in a position to make a trade that everyone was happy with.
To set yourself up for a win-win deal, define the issues at stake and craft a priority statement that says what you want to get and what you’re willing to trade. Next, think about your counterparty's priorities: Are there issues where you can be flexible that your counterparty prioritizes and vice versa?
These are some typical issues in a SaaS deal:
1. Deal Size: The total annual payment for the software, which is driven by how much of your software the prospect buys and by the price of each unit.
2. Future Deals: Positioning the account to upsell well in the future. If you’re signing a small initial deal with a big company, you might try to keep your price on the initial deal high so you preserve your ability to discount later on to incentivize a larger future deal.
3. Speed: This usually means getting the deal done by a specific deadline, such as the end of the quarter.
4. Certainty: Being sure we win rather than another vendor by being flexible on other issues.
5. Unit Price: Getting the best price for each unit of our software, such as a higher price per seat license.
6. Terms: Additional points like payment terms and contract length.
In the deal above, our priority statement was: “We want to secure a large deal by the end of the quarter. To make that happen, we can be flexible on the unit price.”
Second, you have to be working with a sophisticated negotiator who is ready to make a win-win trade.
In the deal above, we pulled off a great win-win negotiation, but only at the end of the process when we were talking to the CFO.
The biggest trap is showing too much flexibility too soon. If you do that, you risk making concessions and not getting anything back.
Complex negotiations happen over multiple interactions with multiple people. Many of the individuals you interact with are looking for information or concessions but aren’t willing or able to make a bold win-win trade.
For example, you might have your first pricing conversation early in the deal with a team manager. He’ll probably ask about pricing, but his goal is to confirm that you’re in the right ballpark so he knows it’s worth evaluating your product. He's not ready or empowered to make a deal.
Give him enough information to satisfy his concerns and get to the next stage of the deal but reserve your flexibility for later. You might share your list pricing and perhaps a few pricing tiers. If he starts asking for concessions, you can defer the discussion by noting that you can design custom pricing but only as part of a negotiation that sets the final terms of the deal.
You might also share your priorities so he can steer the deal in the right direction. For example, you could share that you're able to offer a lower price in exchange for a larger deal so the team manager is motivated to introduce you to other teams. That grows the deal and gets him a better price.
Your second pricing conversation might be with a procurement analyst who wants a discount. You may have to give him something he can call a “win” to get past him. But it would be pointless to try to propose a bold win-win trade; that’s beyond his scope.
Your third pricing conversation might be with the department head. She’s a serious player who understands how to make a deal and is empowered to set the final terms.
Now you’re ready to have a win-win negotiation.
Third, you have to execute an effective win-win negotiation.
This starts before the call. Consider how close you think you are to a final deal. There might be multiple rounds of discussion even after you start working with an empowered counterparty. The two sides might not fully understand each other or there might be a couple levels of approvals on the buyer's side. If multiple rounds remain, plan to feel the situation out and work stepwise toward a final deal.
Prepare the options you'll present before the call. You probably have a sense of what trades the prospect might be open to, such as a larger deal in exchange for a lower unit price. Putting the numbers on paper gives you a chance to reflect and clarify your approach. It's also worth thinking through what counterproposals you expect from the buyer. How do you feel about them? How would you respond?
When the call begins, align on a win-win approach. One way to do this is to test the waters: Say that you prefer to treat negotiations as a joint problem-solving exercise. You’re happy to identify the areas you prioritize and the areas where you can be flexible if they’re willing to do the same. Does that work for them?
Another way is to identify your pricing “levers.” These are the things the prospect could give you that would earn flexibility on the issues they care about. You might share that you can be flexible on the unit price in exchange for a larger or faster deal.
Confirm what kinds of trades they’re open to before you propose specific options. You don't want to propose a big discount in exchange for a faster deal only to find out that your counterparty doesn't have control over the speed of the deal but is very interested in the discount nonetheless!
Be ready to explain why your proposals satisfy both sides' core business interests. If you have a minimum deal term, it's helpful to be able to say that you need that term to recoup your fixed costs and that it's compatible with the buyer's interests because driving ROI takes time. Ideally, your explanation links to conversations earlier in the deal. If you're proposing a trade of a good unit price in exchange for a large deal size, reference the points you've made about why the large purchase delivers value for the buyer.
Double check that your counterparty is empowered to make a final deal before you show too much flexibility. Every negotiator's greatest fear is that they make a bold proposal and think they have a deal, only to have it reopened by someone else later on who asks for even more.
Be ready to make a deal on the call if the right conditions are in place. You're in position to make a deal when all the elements above are satisfied and your counterparty is proposing something you've thought about prior to the call. But don't hesitate to press pause if the negotiation takes an unexpected turn. It's easy to miss something in the heat of the moment; there's no shame in saying that you need to run the numbers and check with your team.
2. The Power Negotiation
Sometimes, your interests directly conflict with the other party. There’s no win-win trade.
Here’s an example: I was working on a deal where we got handed off to procurement and they made a request out of left field.
They wanted a VERY lengthy free trial. They called it a “test drive” but really it amounted to an awful lot of free service.
I assessed our power: The economic buyer was confident that we were the right vendor and wanted the deal wrapped up. We’d also offered them a discount that would expire at the end of the quarter.
So we didn’t offer a compromise.
We just said “no” and reminded them they needed to move fast to keep the discount.
They caved.
Why did that work?
We’d built power with a good sales process, we assessed our power correctly, and then we used it when the time came.
But remember: You don’t have power just because you’re a good negotiator. Power depends on the circumstances.
The best negotiators excel at assessing how much power they actually have.
Power assessments are easy to get wrong. In fact, I messed that up with this same account when their renewal came around a few years later.
They asked us for a crazy discount on renewal.
We took a firm line and didn't budge much on the price. We had power when we did the initial deal, so I used the same move again.
But our power had changed. The economic buyer no longer felt that we were a unique fit for his needs.
I was trying to use power we didn’t have.
And they churned.
Ouch.
So how do you assess power?
Look for specific facts; don’t go on vibes. When poker players try to “read” other players, they don’t try to interpret their facial expressions. They look at their betting behavior.
In sales, consider factors like these:
1. Value: How well have you proven the value of your solution? The better your proof, the more power you have.
2. Differentiation: What would they do if they didn’t buy your solution and how well would that work? Be specific: We all think our solution is the best. What exactly is different and why does that matter to this account?
3. Relationships: Who do you have relationships with at that account, how powerful are they, and where do you stand with them? It's harder for procurement to push you around if the VP who runs the business unit loves your solution. Engaged senior stakeholders want procurement to get them a good deal but not to stand in the way of an important partnership.
4. Constraints: What constraints is the buyer working under? If they’re having massive budget cutbacks, you have to take their discount requests seriously.
5. Reasonableness: How reasonable is your position? You have more credibility if you’re taking a position that’s common in your industry and you can articulate why it’s fair. It also helps if you've done something to address the prospect's legitimate requests and given each of their key stakeholders a "win" that lets them claim victory. Consider dividing up your concessions into chunks and giving one to each member of the prospect's team who needs a "win" before approving the deal.
Having these factors in mind also helps you run your sales process. Great sales processes maximize the power factors you can control and uncover information about the ones you can't.
3. The Brick Wall Negotiation
Sometimes you have a creative solution to a commercial problem and you’re working with a counterparty who just doesn’t get it.
They can repeat their company's policies over and over… and that’s about it.
When that happens, you’ve got to get around them. You can go back to another point of contact and ask for help. Or you can suggest that each of you bring your managers to a call so you can strategize.
I worked on a deal with a Fortune 500 company where they asked for a purchase model that we couldn't offer. But I had a way to use a purchase model that we could offer to achieve very much the same purpose.
My original point of contact was very polite, but just wasn’t grasping the issue. I explained the situation and my proposed solution again and again and we got nowhere.
Once his manager joined a call, we started making progress and ultimately closed the deal.
4. The Internal Negotiation
Sometimes, the party that needs to make a concession to get a deal closed is… another department at your company!
Perhaps the prospective customer needs a custom feature or additional services. Sometimes, they just need deal terms that are not what you normally offer.
How do you set yourself up for success?
First, understand the potential revenue.
If you’re working with a prospect who is making custom requests, be clear that your ability to consider custom requests depends on the size of the potential deal. The greater the committed revenue, the more scope you have to consider creative solutions.
One of the biggest deals I was ever involved with came about after the prospect made a series of special requests. We said we were open to them, but it had to be the kind of deal that would get our CEO excited.
And it was!
Second, identify exactly what’s needed.
Try to understand the result they want, not just the method they think they need. Your team may be able to find workarounds that are more efficient than the most obvious solution.
Figure out if their ask is essential. If it is, be sure you have enough information to say why it’s so important.
I once had a customer highlight the importance of his request in terms I’ll never forget. Our product had a gap and I’d offered him two workarounds to address it. Candidly, neither was all that great.
One Saturday morning, I got a note from him saying that I was offering him "a choice between a hemorrhoid and a toothache.”
That stung!
But he was right. And his email gave me clear proof that we had to come up with a better solution.
Third, manage relationships internally.
Go out of your way to be nice to partner teams. I had a colleague who would bring the legal team cookies at the end of every quarter. That was nice… and smart!
But also keep them firmly on task. Their job is to find solutions. Your company’s purpose isn’t legal work, it’s to be a good business in a manner that’s consistent with the law.
The Takeaway
Before you can have a successful negotiation, you have to know what kind of negotiation you’re in.
Different negotiation modes have different methods. Mastering them all and knowing when to apply them leads to success!
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