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What are the best ways to leverage your position in a purchasing negotiation?

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Purchasing negotiation is a crucial skill for any business that deals with vendors, suppliers, or contractors. It can help you save money, secure better terms, and build long-term relationships. However, negotiation is not a one-size-fits-all approach. Depending on your position, you may have different levels of leverage, or the ability to influence the outcome of the negotiation. In this article, we will explore some of the best ways to leverage your position in a purchasing negotiation, whether you are a buyer or a seller, and how to use various tactics and techniques to achieve your goals.

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Jean-Francois Murphy Filiatrault

I help financial professionals and firms with: Purchasing & Selling assets and practices, Staffing, Transitioning to a…

1 Know your value

The first step to leverage your position in a purchasing negotiation is to know your value. This means understanding what you offer and what you need from the other party, and how they perceive you. For example, if you are a buyer, you may have more leverage if you have a large volume of orders, a long-term contract, or a strong reputation in the industry. On the other hand, if you are a seller, you may have more leverage if you have a unique product, a loyal customer base, or a competitive advantage. Knowing your value can help you determine your best alternative to a negotiated agreement (BATNA), or the option you have if the negotiation fails. Your BATNA can help you set your reservation price, or the minimum or maximum amount you are willing to accept or pay.

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2 Do your research

The second step to leverage your position in a purchasing negotiation is to do your research. This means gathering as much information as possible about the other party, their needs, their preferences, their constraints, and their alternatives. For example, if you are a buyer, you may want to research the market conditions, the supplier's performance, the quality of their product, and their competitors. On the other hand, if you are a seller, you may want to research the buyer's budget, their demand, their pain points, and their decision-makers. Doing your research can help you identify the sources of value, or the areas where both parties can benefit from the negotiation, and the sources of conflict, or the areas where both parties have different interests or expectations.

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3 Choose your strategy

The third step to leverage your position in a purchasing negotiation is to choose your strategy. This means deciding whether you want to adopt a competitive or a collaborative approach, or a combination of both, depending on the situation and the relationship. For example, if you are a buyer, you may want to use a competitive strategy if you have a strong BATNA, a low dependence on the supplier, or a short-term transaction. On the other hand, you may want to use a collaborative strategy if you have a weak BATNA, a high dependence on the supplier, or a long-term partnership. Similarly, if you are a seller, you may want to use a competitive strategy if you have a unique product, a high demand, or a limited supply. On the other hand, you may want to use a collaborative strategy if you have a commodity product, a low demand, or an abundant supply.

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Jean-Francois Murphy Filiatrault

I help financial professionals and firms with: Purchasing & Selling assets and practices, Staffing, Transitioning to a new platform
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An important thing to keep in mind from the buyer's perspective is that the seller undoubtedly wants the moon and then some. They're selling something that's been a part of their identity for most of their life, and there's a lot of emotional weight there. As the buyer, you need to be mindful of that and get to as close to their desired value as possible, but also be mindful of your cashflow. The best way to do that is by framing the deal in a way that meets the seller's expectations, but protects you. Purchase with a balance of sale is an example, another is to make sure the seller stays for a few years after sale, perhaps with a referral agreement in place, where you pay them extra if they bring new business.

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4 Use your tactics

The fourth step to leverage your position in a purchasing negotiation is to use your tactics. This means applying various techniques to persuade, influence, or manipulate the other party, depending on your strategy and your goals. For example, if you are a buyer, you may want to use tactics such as anchoring, or setting a low initial offer, framing, or presenting your offer in a positive or negative way, or bundling, or combining multiple items or issues into one package. On the other hand, if you are a seller, you may want to use tactics such as concession, or giving up something in exchange for something else, scarcity, or creating a sense of urgency or exclusivity, or reciprocity, or offering something for free or at a discount.

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Jean-Francois Murphy Filiatrault

I help financial professionals and firms with: Purchasing & Selling assets and practices, Staffing, Transitioning to a new platform
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In the field of finance, or really any other sales driven field where you would want to purchase a business, negotiation tactics are hogwash. You're going to be dealing with people who are in your field, have decades of experience, have been sold every which way, and won't appreciate dishonesty or devious tactics. The best way forward is transparency and clean communication of your expectations. This is someone who's cooperation you'll need for years to come, don't try to win over them.

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5 Communicate effectively

The fifth step to leverage your position in a purchasing negotiation is to communicate effectively. This means using verbal and non-verbal skills to convey your message, listen to the other party, and build rapport and trust. For example, if you are a buyer, you may want to communicate effectively by asking open-ended questions, expressing your interests and concerns, and acknowledging the supplier's perspective. On the other hand, if you are a seller, you may want to communicate effectively by providing evidence and testimonials, highlighting your value proposition and differentiation, and addressing the buyer's objections and reservations.

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6 Review and follow up

The sixth and final step to leverage your position in a purchasing negotiation is to review and follow up. This means evaluating the outcome of the negotiation, ensuring that both parties are satisfied and committed, and maintaining the relationship for future opportunities. For example, if you are a buyer, you may want to review and follow up by confirming the details and terms of the agreement, providing feedback and appreciation, and monitoring the supplier's performance and delivery. On the other hand, if you are a seller, you may want to review and follow up by sending an invoice and a thank-you note, soliciting referrals and testimonials, and offering after-sales service and support.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Jean-Francois Murphy Filiatrault

I help financial professionals and firms with: Purchasing & Selling assets and practices, Staffing, Transitioning to a new platform
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While it might not seem as good an option, it's always a good idea to consider a loan from the bank. A lot of buyers think they can buy without financing by paying from the purchased asset's cashflow over a period of time. This is often ill advised as the period after purchase can be a bit rocky, and those payments will most likely mean that you are making negative or zero profits during those 5 years, which is incredibly draining on your mental health. It's best, in my opinion, to get a cashflow loan from the bank and even out your payments to have some margins for operation during the purchase years. Even if it means paying interest.

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What are the best ways to leverage your position in a purchasing negotiation?

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1 Know your value

2 Do your research

3 Choose your strategy

4 Use your tactics

5 Communicate effectively

6 Review and follow up

7 Here’s what else to consider

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