A sales negotiation can sometimes sneak up on you, and if you aren’t careful it can bite you in the rear. One such case is what’s called the “planning purpose trap” and it has bitten more than one sales negotiator. It turns out that there’s really no reason to fall into this trap and so I’m going to tell you what you need to be watching out for…
The Set Up
The planning purpose trap starts out innocently enough. The other side comes to you prior to any negotiations starting and makes what appears to be a simple request: could you provide them with a planning price?
They’ll give a number of different reasons for asking for this price. Perhaps they need to get budget approval. Or perhaps they need to advise their management of the rough size of the deal that you’ll be talking about. No matter – they’ll tell you that the number doesn’t need to be exact and that you won’t be held to it.
What will you do when you get a request like this? If you are like most of us, you’ll sit down and come up with a rough estimate of what the final deal will look like. You’ll probably take into account what you think the other side will be able to pay and you’ll make sure that your estimate is on the low side because you don’t want to scare them away from the deal with a high price.
Ah, now you are trapped.
How Things Go Bad – For You
After we provide this type of “planning price” we often forget that we’ve done it. Instead we focus on the negotiations that are coming up. We figure that we’ve “primed the pump” and they know the ballpark that we’ll be playing in when it comes to talking about prices.
That’s where we’re wrong. More often than not, what will happen is that when the real negotiations start, the other side is going to object to any price that we put on the table that is higher than the “planning” price that we’ve already provided them with.
Their reasons for objecting may vary, but they will all have a common theme. They’ll say something along the lines of “…but that’s not what you told me”. They may say that they’ve only got budget / authorization for the amount that you already told them about. No matter how they put it, they are effectively putting pressure on you to provide them with a price that is close to the low planning estimate that you’ve already provided to them.
How To Avoid Getting Trapped
In order to avoid falling into the planning purpose trap, you need to take some very specific steps. The first of these is to realize from the outset that ANY price that you provide to the other side is more than likely to come back to haunt you.
As long as the other side is asking for a price, take this as an opportunity to truly scope out exactly what work is going to have to be done for the project that is being discussed. As part of this effort, make sure that you identify any unknowns or areas where there could be more work than initially thought.
As you are creating your estimate, make sure that you know the people on both sides of the table who will be in charge of executing the agreement. Make sure that you both know and talk with these people in order to get their inputs into your estimate.
When you provide your estimate to the other side, make sure that you do so in writing – don’t just verbally tell them what the number is. Make sure that you include all of your assumptions so that when the other side says “but you said that it would cost this much”, you can point out that it has changed because some of your assumptions have changed.
Finally, tend to estimate on the high side. I know that this may turn out to be hard to do – we don’t want to scare away the customer. However, by doing this you’ll be positioning yourself for more success when the real negotiations start later on.
What All Of This Means For You
In our efforts to help the other side prepare for an upcoming negotiation, the things that we do to set the stage for the negotiations may end up hurting us in the end. The planning purpose trap is one way that we can limit our options even before the negotiations start.
If the other side asks us for an estimate so that they can get approval to proceed, you need to be very careful what you tell them. Although they may say that they don’t plan on holding you to this value, they will. You need to carefully find out all of the details about what you’ll be estimating. When you provide your planning price to the other side you need to make sure that it’s written down along with all of your assumptions in order to ensure that other side doesn’t use it against you later on.
Helping the other side prepare for an upcoming negotiation is not wrong. Painting yourself into a corner before the negotiations even start is. When you are asked to provide a planning price, be very careful. Make sure that the planning price that you provide comes with a lot of explanations so that you don’t have to explain to your management why you ended up agreeing to such a low price…
– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World Negotiating Skills™
Question For You: How can you keep your estimate high without scaring away the other side?
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What We’ll Be Talking About Next Time
Who doesn’t like packaged luncheon meat? Well, ok, maybe a lot of people don’t, but at least when I say the word “salami” everyone gets a mental image of what I’m talking about: one of those sausage looking things that you buy at the store and then proceed to slice off pieces as you make things like sandwiches. Why is this so important that every sales negotiator should have one of them on their desk at all times?