Concessions are a sticky business and at the end of a negotiation, when the close is ever-so-close, it’s easy to end up at a number you’re not happy with.
It’s a horrible feeling to work so hard and have your prospect throw in last-minute terms in the negotiation in exchange for the signature on the deal. How you handle these concessions will determine how profitable your relationships become.
How you handle the eleventh-hour concessions also sets the tone for the type of relationship you’re likely to have with a customer. If you’re not careful, you’ll fill your support lines and product development teams with demands for freebies from your customers instead of suggestions of future feature requests that can generate revenue.
So how do you navigate the last steps toward close without giving away too much?
The Science of Making Concessions
People rarely appreciate and value something they have gotten for nothing. And when they do get something for nothing, it sets off a bell in the prospect’s mind that they can get more if they keep asking.
The top 9 things to keep in mind when making concessions on your next SaaS deal:
- If you give, you get. If you have to concede, ask for something in return. Never ever concede “for free”. One of the more common textbook concessions is exchanging a decision today in exchange for a concession from you. Just be careful to structure the concession correctly since some prospects will delay their decision anyhow leaving you feeling frustrated.
- Splitting the difference is for the birds. In America, it’s a common negotiation tactic to “split the difference”. If your prospect wants $79/mo and you want $99/mo., one party can offer to split the difference at $89/mo. The next time you get this offer, just reply that you can’t afford to split the difference. If you didn’t make the common SaaS mistake of winging your pricing model, then you picked your prices for a host of reasons. Side step the split-the-difference trap and try to find other avenues to explore coming to terms with your prospect.
- Don’t give anything away. Try to find concessions that your prospect would value but don’t cost much — if anything. For example, extra training during onboarding encourages adoption and is usually in your best interest. If two users of the twelve you just sold need more training, you’d probably handle that in support for free for a new customer anyhow. Use things like these during your negotiation. Yes they cost you money, but a few extra training hours for a few customers now and then is probably in everyone’s best interest. Just don’t go crazy with it.
- Just say No. No is a beautiful word and I’m surprised SaaS companies don’t use it more often. When you say No a few times, magical things start to happen — prospects realize that what you have is valuable and that there are limits to what you can concede. A lot of times prospects negotiate because we’re all trained that we should negotiate everything.
- Keep some cards hidden. Many entrepreneurs in sales roles want to get to the deal quickly so they mistakenly put all their cards on the table at the beginning of the negotiation. I know we all want to get new customers to like us, but your prospect may be a shrewd negotiator. Encourage your prospect to tell you what they want first. It may have nothing to do with price.
- Keep a tally. When you’re on a phone call closing remotely (which is usually the place where the close will take place for SaaS companies after an optional on-site visit), it’s easy to get excited for the close and lose track of your concessions. Pre-call planning is a must for negotiations so you know what you are (and are not) willing to give up. Keep an ongoing tally during the call of your concessions so you don’t make mistakes and can keep the scales balanced.
- It’s okay to go backwards. Let’s say you concede on payment terms in exchange for a decision today and later you’re asked to make another concession. It’s okay to go backwards and pull a previous concession off the table. Always keep in mind that the last set of terms ends the deal — the concessions you make in between can change so you both win at the finish line.
- Pace yourself. If you were selling your home and the first person in the door gives you your asking price, you’ll invariably think you left money on the table. Be careful not to concede too quickly or you may inadvertently signal to your prospect that there’s more to be had.
- You have more power than you think. Remember, the prospect wants your solution because of the impact it will have on his business. If you don’t come to terms, your prospect loses too. If you’re negotiating lower down in the organization (i.e. IT) and you used an effective SaaS selling process then the business folks are likely asking for the solution. You can still find ways to make IT look good without making significant concessions because in the end, IT may not be able to say No.