By definition, we know that negotiations are the process in which parties seek a lasting and favorable consensus. And if I isolate the most important aspect of negotiations, it would be ZOPA (Zone of Possible Agreement).
Determining what the benefits are from the point of view of other participants in negotiations will help you decide whether the possibility of an agreement exists – or whether you should break off the negotiations to save time.
What is ZOPA?
ZOPA, or bargaining range, describes the intellectual zone in sales and negotiations where an agreement can be met which both parties can agree to. Within this zone, an agreement is possible.
Let’s take a 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 (with $2 being the minimum amount before the seller does not get a return).
The buyer’s ZOPA ranges from minus infinity (they won’t mind receiving a scoop of ice cream for free, or when someone gives it to them for free and then adds a billion dollars on top of it) to $5 (this is the psychological barrier where the buyer thinks that anything above $5 is 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, entrepreneurs and salespeople make an awful lot of mistakes by not breaking off negotiations which cannot be successful – to a large extent by not thinking about your partner’s ZOPA. If you do not know how far you can go, you’ll either overstep and your partner will break the negotiations, or you’ll end up getting less than is possible.
The most common negotiation fields
Hardly anything is negotiated on only one level, like 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:
- 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
Certain things are always more important than others. For instance, for a small business, the most important concern is usually cash flow. Therefore a client who offers, for example, a 50% down payment for a project that lasts a year can count on a preferential rate. That’s why I am amazed at corporations that, 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 their layoff will increase significantly.
In this case, the necessity to perform a 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 the decided parameters. And 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 where the decision-maker works).
Searching for a ZOPA with 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 you can communicate with. 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 bare minimum.
Say that you don’t see the possibility of agreement. Give them a specific reason, say what would have to happen so that you could come back to the talks. Remember about respect and empathy, and end 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 to research their company and history, social media profiles, and blog articles. Therefore, simultaneously dealing with more than ten negotiation processes worth over $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 this:
P.S. If you think that reading this article will help you gain some discounts on Casbeg’s Services – you are mistaken 🙂