Making the 'Size of Deal on the Table' Count in Negotiation?

Given the current financial pressures in the market, no deal with a customer can/should be regarded as ‘one-off’. In fact, all arrangements with a buyer have a knock-on effect and should be factored into the total business performance for each party. By placing the deal in a proper market context, it is easier to add value on completion and ensure a greater degree of compliance.  

In practice it means making the following upfront calculations:

Customer’s share of the category (£,%)

Establishing the customer’s share of the category allows us to allocate an appropriate level of preparation and investment, with a realistic view of both upside potential and consequences of getting it wrong…

Customer’s share of our business (£, %)

Again, knowing that a customer accounts for 15%, rather than 1% of our business has to help us to prioritise all aspects of the relationship and quantify the impact on our sales and net profit, for the whole team...

Our share of their business (£, %)

Realising that we account for less than 0.001% of the customer's business can explain some of the issues with getting appointments, and difficulties in making the buyer listen, but can help to reduce  arrogance-levels on the part of strong branded manufacturers attempting to break into a new channel...

Our share of their category (£, %)

However, when we have 20+% of a customer’s definition of a category, it is obviously useful to move the conversation quickly from share of business to share of category in order to restore our confidence and buyer-appeal.

Size of the deal for them (Sales, Gross Profit)

Only at this stage is it appropriate to calculate specific dimensions of the deal in terms of sales and gross profit. In other words, if a customer is buying £200,000 from us and resells for £250,000, making a 20% gross profit, this £50k limits on the size of the buyer’s potential concessions available for negotiation.

Size of the deal for us (Sales, Gross Profit)

Knowing that our ex-factory cost is 50% of the £200,000 sold to the buyer, tells us that we have a maximum pool of £100k in discretionary funds from which to make concessions, and can provide a basis for fair-share negotiation...  

If the above process still seems over-the-top for a ‘one-off’ deal, then going in blind will probably result in a ‘one-off’ outcome, adding to our overall uncertainty/stress-levels, and doing little to optimise the relationship in these already uncertain times.

As always, your call….