Featured Coaching Training: 17 Steps For Effective Contract Negotiations
Are you having trouble with contract negotiations? In this episode learn the 17 steps to effective contract negotiations taught my the Small Business Administration's "Entrepreneur of the Year" Clay Clark.
Featured Coaching Excerpt - Notes & Transcript, Part 1
Steps For Effective Contract Negotiations:: 5. Allow For Wiggle Room
Lesson Nugget:: When buying shoes and negotiating deals, you must give a little wiggle room.
Lesson Nugget:: You must offer lower than you think is reasonable or ask for a sales price that is higher than reasonable to end up with a fair deal.
Definition Magician:: Price Elasticity - A measure of the responsiveness of demand or supply of a good or service to changes in price.
-Step Number Five, allow for wiggle room. Clay, what does that mean?
-Well, my son, he is rocking that eight years of age deal. And so what you do is, his foot, this is his foot. This is a good foot drawing here. You know, he's got a foot and stuff. And his foot with his toe and everything. His foot grows like, I don't know, like an inch every week, you know what I mean? It's like an inch a week.
So you buy a shoe for the guy, you say, OK, I'm going to buy this shoe for this guy and you know, here's his shoe. And little kids, they want to get a brand they know, like an Adidas or something. They get them a shoe and that's how that goes.
What you want to do is, you want to buy a shoe with a little bit of wiggle room because you know he's going to grow, you know what I mean? But I don't do that apparently. I just buy shoes that fit. I guess I hate money.
But the point is, so I buy the shoe and as soon as I buy the shoe, his foot grows a little bit. It grows by like, 2%. And then he's like, Dad, my shoes hurt. Ugh. And I'm like, just wear the shoe till you're 35 and we'll be fine. Why don't you just where a shoe till you're 35? Why do we have to buy a new shoe every week, you know? So my son's now wearing like flip-flops. He's basically barefoot, is what we've made him do to cut down on cost.
But the point is, we didn't allow any wiggle room when I bought his last pair of shoes. That Idiot of The Week Award goes to me, but I bought him a shoe that fit comfortably, not the one that had wiggle room.
And when you negotiate a deal, a lot of times we only ask for exactly what we want and we don't allow any variance, OK? So let's do an example. Let's say you're going to go buy a house right now. And if the house, if you and your wife are prepared to pay, or you and your husband, let's say that you wear the pants and you are the wife and you and your husband are going to go buy a house. He's a stay-at-home dad. Let's flip it for a second.
So he's a stay-at-home dad. You talk to him and you say, hey, let's buy this house for $230,000. And that's the most you can pay, period. And you're trying to buy this house. You say, $230,000 is the most I can do. And the person has their house on sale for like, $245,000. If you say, $230,000 is the most we can do, they're always going to come back and ask you for $235,000. So they say, no. We want to do to $235,000.
Well, here's the deal, if you offered the biggest deal you could do on the first pass, you've put yourself in a bad spot. So I'm telling you this, if you're offering to buy something, always offer lower than what you think is reasonable or what you think is-- you want to basically get to a point where at the end of the deal, it's fair, OK?
But you have to start offering a little bit lower than what you want to pay because you have to allow that wiggle room. Now, if you're somebody who's selling, put the sales price higher than what you want so that way, when they negotiate down, it gets to what you do want. You've got to think about that ahead of time. Think about what you want and then pump it up a little bit.
Example, have you ever noticed like, Walmart, every product is on sale? Like, I went into Sprouts, it's an organic grocery store that I love, by the way. And I go in there and I'm noticing like, avocados are on sale right now. There's four for $5.00. That's a sweet deal.
It says, on sale, save money, big money, save money, save money, save big money, instant savings. I'm thinking, I probably get paid by just going in here. There's so much savings going on, I probably will become a multimillionaire in 10 minutes just by saving all this money.
What happens is though, they always take the suggested price-- have you ever gone into like a Guitar Center or Target or any company, you notice it says suggested retail price? And it's like, this DJ-- I used to DJ-- so, this DJ system normally is $2,400, however, with today's green tag special, it's $1,999. The point is, they're doing price elasticity. They're saying-- price elasticity is the idea. They're saying, the price is normally here, however, with the discount, it's here.
Marshall, does that whole price elasticity-- you talk to the Thrivers everyday-- does that price elasticity idea make sense to you, my friend?
-Yeah, absolutely. So a lot of Thrivers are saying, you know, how do I price my product? How do I do that? Well, if they're always coming in at specifically, like you say, just at what they're expecting and needing to get paid, and they never go above so that they can either discount it or come in with some type of offer or something like that, then, you know, they can actually increase the value of their product.
Featured Coaching Excerpt - Notes & Transcript, Part 2
Lesson Nugget:: Southwest Airlines, Whole Foods, and Starbucks all offer discounts that they could not offer without appropriate pricing.
Lesson Nugget:: You must factor in price elasticity.
-If you think about, like, one of my favorite companies is Southwest Airlines. I love those guys. When I get to fly Southwest Airlines, I am excited. Those guys do a very, very good job. Or another company is Whole Foods, that I can think of. And I'll just kind of give you those two. But it seems like every time I go into Whole Foods or southwest.com, they always have a special. They have some sort of thing. It's some sort of, like, call out bubble or something that says "special". Or it says "on sale". You know, it says "special sale price".
And the thing is is that a lot of the Thrivers all across the world, we've talked to you in every country. It's unbelievable. A lot of us are pricing things at our very-- what we need to, what we need. We're not putting any wiggle room in there. So when you're going to negotiate, that's a little pricing, little bonus lesson for you. Make sure you price things above what you need to actually get, so after negotiation, you get what you have to get.
-So when we're talking about this wiggle room, how much would you suggest to build in for a contract, or a sale price? About how much are we talking here?
-I'd say 15%. I'd always put in 15%.
-One, I mean, one cause, I mean, Tim Tebow wore the number 15, and I try to always talk about that, try to weave that in. Two, it's Thrive15. No, but honestly, I always throw 15% because then you can negotiate down or up, and you end up right about where you want to be. But 15%.
-And worst case scenario, they just purchase it at that wiggle room price.
-Exactly. And I'm telling you this, you've got to do that because price elasticity, if you have like an elastic-- back in the day, and I don't know what the deal is right now, but women are wearing a lot of these, what are they wearing? Yoga pants everywhere?
-I go to the airport, and it's like the National Yoga Pants Convention. It's like, let's see how many yoga pants we can wear, how much yoga pants we can wear. The point is, you know, back in the day, old school, we're talking like '99. You know, that kind of '90s when Regulate by Warren G used to be out there. That was when music was music.
But anyway, the thing was is that people used to wear sweatpants, and they had elastic on those things. Elastic, you know. And the thing is, the idea is you could probably gain 10 pounds or lose 10 pounds, but you just take that drawstring, and you tighten it up, you loosen it out, whatever you want to do. Off season, you're, you know, you're kind of, that's getting tight. In season, it's getting loose, but the point is you could adjust that with a drawstring.
You look at your prices the same way. You got to be able to allow some in, allow some out. You don't want, like, a custom, tailored, fitting suit price, where it's just specifically priced because if you do, you're putting yourself in a bad spot.
That's why Southwest Airlines, go on their website right now. Do it right now. This is homework for you. Go on their website, and notice why do they have certain things on sale? I don't know. If less people want it, if there's less need and there's more supply, then they factor supply and need, and they go-- the supply and demand, and they go, well, demand is up here. So there's tons of people that want it, so we should probably charge more. Demand is low, we should probably discount. Boom.