If I were to talk about the most important aspect regarding negotiations, I would enclose it in four letters: ZOPA. Zone Of Possible Agreement. By definition we know that negotiations are, “A process in which the parties seek a lasting and favorable consensus.” Determining what the benefits are from the point of view of other participants in the negotiations will help you decide whether the possibility of an agreement exists – or whether you should break the negotiations to save time.
What is ZOPA?
The zone of possible agreement (ZOPA), or bargaining range, describes the intellectual zone in sales and negotiations between two parties where an agreement can be met which both parties can agree to. Within this zone, an agreement is possible.
Let’s take look at the example of a simple transaction – buying a scoop of ice cream in an ice cream parlor. Let’s assume that the only axis on which we can negotiate is the price. The seller’s ZOPA ranges from infinity (they won’t mind receiving a billion dollars if there’s someone willing to pay it) to 2 PLN (under 2 PLN the cost of producing a scoop of ice cream does not return).
The buyer’s ZOPA ranges from minus infinity (they won’t mind receiving a scoop of ice cream for free, nor when someone will give it to them for free and add a billion dollars on top of it) to 5 PLN (this is a psychological barrier – the buyer thinks that 5 PLN for the scoop is daylight robbery). When we apply these factors together, it looks like this:
Simple, right? Not really if we add a few more dimensions than just the price.
Define ZOPA in negotiations
From my observations, it seems that entrepreneurs and salespeople make an awful lot of mistakes by not breaking negotiations which cannot be successful – to a large extent by not thinking about ZOPA. Not thinking about your partner’s ZOPA. If you do not know where the border is to which you can go, you’ll either go too far and your partner will break the negotiations, or you’ll try to bargain less than you can, and thus get less than is possible.
The most common negotiation fields
Hardly anything is negotiated on only one level, such as the price in our ice cream case. It is almost always the case that we negotiate many things at once. The most common negotiation fields are, for example:
- Notations in contracts,
- Payment dates,
- Delivery dates of the service/product,
- Scope and additional services,
- SLA (Service level agreement),
- Customer responsibilities.
Understand what is crucial for your partner
Lack of recognition of priorities within the partner’s ZOPA. Certain things are always more important than others. For instance for the small business the most important interest is usually cash flow – as it protects against bankruptcy. Therefore a client who will offer, for example, 50% down payment for a project that lasts a year can count on a preferential rate. That’s why I am amazed at corporations which, in conversations with marketing agencies, hold 60 or 90-day payment dates after completing a campaign that lasts several months.
If they offered very good payment dates, they could count on better rates and partners focused on the value for the client, instead of patching the budget. On the other hand, in negotiating with corporations, the negotiator’s interest is very often detached from the company’s. So if we know that the last two implementations for this manager have failed, we know that this one MUST work – because if it fails, the probability of his layoff will increase significantly. In this case, a necessity to perform thorough pre-implementation analysis (to minimize the risk of mistakes) significantly increases. Surely there will be a budget for additional SLAs to ensure that the service will achieve decided parameters. Questions about the supplier’s warranty policy won’t be a surprise either. Each of these points is perfectly in line with the interests of the supplier and the decision-maker on the client’s side (but not always the contracting company in which the decision maker works).
Searching for ZOPA at clients that do not have it
If your client wants to get something for free – there is probably no room for agreement. Say what your minimum deal is, get up from the table and run after customers with whom you can communicate. The vast majority of such situations will never turn into sales – you want to limit the amount of time you spend on such customers to the necessary minimum. Say that you don’t see the possibility of agreement – giving them a specific reason, say what would have to happen, so that you could come back to talks. Remembering about respect and empathy, cut the conversations as quickly as possible, always leaving the gate open for this client to return.
Negotiate when it’s worth your effort
A thorough rethinking of the negotiation field takes time. An hour is not enough for the research of all of the partner’s social media profiles, his company, reading a minimum of a few posts from their blog, getting to know the company’s history etc. Therefore, usually simultaneous dealing with more than ten negotiation processes worth over PLN 100,000 each is more than any sales rep can handle. It is worth establishing a minimum deal from which we start negotiating (a more appropriate term would be to refine the offer) and a threshold from which we begin to negotiate intensively. Then the structure of your offer processes looks like in the picture:
P.S. If you think that reading this article will help you gain some discounts on Casbeg’s Services – you are mistaken 🙂