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AboutNo matter what industry you’re in, the core activity of your business is very likely in the act of buying and selling goods or services, or both. And, unless you’re in retail where there’s a firm price attached to each article you’re selling or buying, it’s very likely that the idea of price for the goods and/or services is highly variable depending on the specifics of the deal. That idea of a ‘negotiable price’ makes up the vast majority of business transactions carried out every day around the globe.
The price you pay or charge for any transaction, ends up being a direct function of how good you are at negotiating that price. Every deal will have a unique set of factors that are on the table to influence the negotiations. And on top of that, there is a significant amount of style, technique and swagger employed by the negotiator that play a key role in the outcome of the deal. Swagger aside, any decent negotiator knows that, to get the best deal, he or she needs to be well prepared.
Preparation and Opportunity
The key to preparation is knowing your numbers. If you walk into a negotiation and your counterpart rattles off a flurry of stats, figures and benchmarks – and you know none of them – you’ll be buried. It’s a rookie mistake to enter the room with confidence and style, but no substance. A good negotiator will spot that a mile away and eat you for lunch, no matter how well dressed you are. In order to know your numbers, you need to have the supporting information to derive those numbers. This means that you need good data. Establishing a starting-point and benchmark for costing out new projects, for example, is greatly simplified if you have good information to start with. When negotiating prices with subcontractors or suppliers, it helps to have good historical trend and benchmark data to support your negotiating position (at the very least to know what things have cost in the past, and how those costs have changed over time). Looking back on past projects and reporting on, as an example, the average cost you’ve paid for a particular material over the past year or two; can be incredibly empowering during negotiations.
A further advantage is being able to side-by-side comparisons of items in aggregate reports, such as average material rates and total amounts purchased – by Supplier and even by Project. Additionally, side-by-side comparisons of subcontractors, in terms of both rate and productivity, will give you further sway in future contract negotiations with those and other contractors. The important takeaway here is that, when you have good data (<em>big data</em>), you can slice & dice that data in a multitude of ways to present a powerful case that supports your negotiating position.
Negotiating Cost Versus Negotiating Price
The role that good data plays is equally important when negotiating the price you pay as it is for the price you charge. Preparing a price proposal for your customer can be layered with nuance and nail-biting uncertainty. It’s near impossible to know if in your proposal you’ve undercharged or overcharged or if a competitor has undercut you. Or even in some cases, if you even have the resource capacity and experience to fulfill the terms of the contract.
This again is where good information can be your best ally for substantiating your estimates of cost, time, margin, contingency, resourcing and risk.
Trending Rate Changes, Inflation and Supply Chain Constraints
Vendors will often up their rates without much of an announcement, and also add in their own contingency factors somewhere in their bid to make up for historical losses. Rate increases are obviously a normal course of business and are often justified. But, if over time, consistent rate increases are sneaking in without your notice, then you’ll have little or no position to negotiate a better rate if you don’t have good historical reporting and trending tools to position yourself with that identify these changes.
It’d be relatively easy if you only had one vendor you work with, but it becomes a big data challenge when you’re dealing with hundreds of vendors over hundreds of projects over many years. This is where technology can really help: in amassing all the data over time and providing trending curves and reports that can pinpoint anomalies or highlight key trends that grant authority to your negotiating.
A Credible Negotiator
Alternatively, if you’re a contractor and bidding on projects, it’s vital to know how your charge-out rates have played out over time. This give you credibility in your customer’s eyes. It also positions you with a good strategy of how, when, and how much to increase your rates when appropriate. You might have past contracts with a repeat customer where margins are lower than expected. Share this information with your customer with reasons for the occurrence, and it will help your customer better understand your proposal rate increase.
Negotiations are a tricky business. Without firm, historical numbers to back up your position, there is a higher likelihood that your approach will be weak and ill-prepared. 4castplus is an ideal construction project management software solution to help you track, report and trend this critical information. It’s time to put you in the lead position when bidding on or awarding contracts.