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⚡️ Today’s level up ⚡️
Welcome to part 3 of this 4-part series on mastering the best negotiation frameworks used in business today. It goes without saying that negotiation is a key skill that will level up your career and life, and is rarely (if at all) taught well amongst sales teams. Today’s focus is on the Zone of Possible Agreement framework, especially helpful when bargaining on price.
Let’s go!
Read time: <7 minutes
If you missed them, read part 1 and part 2.
Q4 means negotiation season
Of the $50M I closed from 2018 – 2022, 28% of it closed in Q4 (specifically December).
That meant most of the negotiations on those agreements started around October.
If you’ve been following along here for the past couple of weeks, I’m creating a toolkit (one I wish I would’ve had as a strategic seller) that intentionally gives proper attention and action to this important skill.
Negotiating agreements well can be the difference in hundreds of thousands of dollars in commissions in your pocket, while setting yourself or team up for happy relationships (and upsells and renewals) down the road.
An undeniable part of negotiating enterprise-level agreements is bargaining. Today, we’ll deconstruct how to do that masterfully using a simple framework – Zone of Possible Agreement (ZOPA).
(As a reminder, I will share a free gift you can use at the end of the series, next week.)
Negotiation Framework #3: Zone of Possible Agreement
What is ZOPA?
ZOPA, or the Zone of Possible Agreement, is that sweet spot in a negotiation where both parties’ interests and limits overlap. Think of it a little like a Venn diagram of what you’re willing to accept and what the other party is willing to give.
Imagine you’re selling a Generative AI solution to a major telco. You’re aiming for a $5.75M deal that comprises 2,500 licenses at $2,300 each, but you and your leaders would be willing to accept as low as $4M, or 2,500 licenses at $1,600 each (with proper concessions, like removing certain features or reducing some professional services).
The telco wants to get the deal done ideally at $3.5M ($1,400 per license), but, unbeknownst to you, is willing to pay no more than $5M for everything on offer. Your ZOPA, in this case, is between $4M ($1,600 per license) and $5M ($2,000 per license).
Outside of this zone? No deal. Inside? That’s where you find the golden honey.
The tricky part is you typically don’t know the size of the bargaining zone when going into a negotiation – you only know your side of the range.
That’s because no one wants to reveal the bare minimum they’re willing to accept. Duh!
This veil of secrecy in most negotiations makes the zone of possible agreement challenging to navigate. However, if you know how to negotiate within it, you can reach an agreement that incorporates some must-haves from each side.
This is how companies end up striking a deal and walking away satisfied. When both sides fail to reach an agreement, it’s usually because the bargaining zone doesn’t line up. This is called the negative bargaining zone, and it can throw your negotiations for a loop.
What is a negative bargaining zone?
If there’s no overlap between the two parties, everyone involved is operating within a negative bargaining zone (or negative ZOPA). At this point, the parties can only reach an agreement if one of the parties is open to drastically adjusting their terms.
Returning to the example above, you’d be locked in a negative bargaining zone if the client wanted to spend no more than $2,000, but you as the seller won’t accept a price below $2,200 per license. You’re not walking away with a deal until someone is willing to budge.
Negotiations can evaporate in the negative bargaining zone. If you find yourself here, there are ways out — you simply have to make your way into the positive zone.
What is a positive bargaining zone?
Negotiations are in the positive bargaining zone (or Positive ZOPA) when both sides have some sort of overlapping terms. The price, conditions, or delivery schedule match up – and it’s possible to come to an agreement that works for everyone.
Let’s use another example.
Say you’re selling a web chat software package to a B2B client. The listed price for the software is $1,000 per seat, but the discounted price is $800 per seat.
Your client has shared that they’re looking for a price of $900 per seat. So, the price your client wants to pay is in the range of what you want to get for the deal.
You can be in a positive bargaining zone without even realizing it. You often don’t know the boundaries of the person you’re negotiating with, so you’ll have to work to find out whether you’re in a positive or negative zone.
Using the proven methods below, you can find out the limits of the ZOPA and land on terms that make both sides happy.
1. Know the BATNA (for your company and the client).
As you’ve learned in the first two parts of the series, BATNA stands for “Best Alternative to a Negotiated Agreement.” It’s the clear alternative if either side has to walk away.
BATNA is a big deal, because seasoned procurement professionals will be coaching your Mobilizer to ensure the business has identified a BATNA in case the deal falls through with your company. Here is an example of that in action.
You’ll need to work closely with your Mobilizer to understand their BATNA so that it’s not a surprise when they pass you off to Procurement and you start working with them to close out the deal.
Equally, you and your leadership need to be prepared to walk away. Identify those things clearly from a Business, Operations, Legal, (and sometimes Security) angle. Here is how Dropbox’s Head of Customer Solutions thinks about it.
2. Come prepared and aligned.
The work you put in before a negotiation is often more important than the actual negotiation itself.
Before it comes down to finalizing the price, you need to establish value that drives business impact. My good LinkedIn friend, Nate Nasralla, breaks down how to do just that in this article.
To “sell value,” Nate says there are three key components:
- Setting: Understand where your customer is today, and where they want to go tomorrow.
- Choice: Map the customer’s business using a driver tree, and settle on the right approach.
- Ending: measure the problem, and flip it upside down to create contrast to a clear payoff.
Once you’ve crafted these three elements with your Mobilizer, then you work with them to create a brief narrative-driven business case that looks and feels like their internal document.
Check out Fluint and work with Nate if you need help with this.
3. Expect the unexpected
There was never a deal of mine that closed exactly as expected or on time as promised.
When new faces inevitably emerge from Procurement or Legal that you haven’t been granted access to, be prepared for things to go sideways. Sometimes this is by design and other times it’s because they are managing multiple key projects and deals at once.
And let’s face it, we’re humans first and professionals second. Things will come up. Tempers get frayed.
As challenging as it can get, staying calm throughout all of this needs to be your superpower. Remember the four keys of Principled Negotiation and run through the checklist of The Seven Elements framework to keep yourself focused on always driving back to a positive ZOPA.
Summary (TL; DR)
Negotiation will not only serve you well in business, but in life.
I am giving proper space for this incredibly important skill, and as such I’ve dedicated one newsletter for four weeks straight to the four most powerful negotiation frameworks used in business today (this was part three).
Today’s edition focused on the Zone of Possible Agreement (ZOPA). It’s a simple framework to use for bargaining.
Next week, we’ll wrap up by focusing on 3D Negotiation. See you then!
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