Negotiation Strategies, Business Negotiation June 26, 2008

Are You Looking For Your 2%?

I've found most business negotiations can produce, at a minimum, a 2-3% swing in the resulting outcome. This doesn't sound like much does it? Only a 2% difference in the sales price. Only a 2% difference in the cost of materials. Only a 2% difference in the the amount of time. Only a 2% difference in the engineering specifications, or quality, or . . . . .

When you are negotiating an agreement, pause for a moment, and quantify what a 2% difference would make. When you do I think you are in for a big surprise.

Of course every organization is different, but let's look at a few real examples of the impact this little 2% can make. I will use information from public corporations since their financial statements are readily available as pubic information.

First let's look at Hewlett Packard. What would be the impact of a 2% reduction in cost of goods sold (think of all the procurement/manufacturing/engineering negotiations)? The 2% would result in a 21.7% increase in net profits for Hewlett Packard. What would be the impact of a 2% increase in sales prices (margins negotiated by sales/marketing)? This 2% would result in a 28.7% increase in net profits for Hewlett Packard. The total potential opportunity --- a 50.4% increase in Hewlett Packard's net profits!

What about the Boeing Corporation? What would be the impact of a 2% reduction in cost of goods sold (procurement/manufacturing/engineering negotiations)? The 2% would result in a 26.3% increase in net profits for Boeing. What would be the impact of a 2% increase in sales prices (margins negotiated by sales/marketing)? This 2% would result in a 32.7% increase in net profits for Boeing. The total potential opportunity --- a 59% increase in net profits for the Boeing Corporation!

Look at Caterpillar. What would be the impact of a 2% reduction in cost of goods sold (procurement/manufacturing/engineering negotiations)? The 2% would result in an 18.4% increase in net profits for Caterpillar. What would be the impact of a 2% increase in sales prices (margins negotiated by sales/marketing)? This 2% would result in a 25.4% increase in net profits for Caterpillar. The total potential opportunity --- a 43.8% increase in net profits for Caterpillar!

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As you can see, 2% makes a big difference! What about your negotiations? What about your company?

The next time you enter a negotiation, think about what that little 2% could do for your organization. What would be the impact on net profit? Make sure you understand what you might be giving away, or leaving on the negotiating table.

Once you approach your negotiations with a goal of searching for this little 2%, you will find you become more engaged with the other party; both of you will gain more information; and you will find opportunities that neither of you may have thought about before. There may be ways to create significantly more than the 2%. That's one of the secrets of true "BOTH-WIN" negotiating. But it all starts with the search for that little 2%.