Best Practices in Negotiation: Raise Your Prices!
Would you agree with the following proposition
?
The longer it takes you to sell something, the more expensive it becomes for you to sell it?
Economists refer to this added expense as a "transaction cost." Your time and effort, as well as advertising and "staging" of the item for sale, all require money or money's equivalents, in know-how, time, and in what my mom used to call "elbow-grease."
Therefore, as time passes in a negotiation, the less we're netting-out from our sale, even if the price never changes. If I start dickering at a $100 price point, but it costs me $50 in clock time to collect that $100, I really brought in $50, correct?
When I bought my first home, the seller was working on an extended contract in the oil fields of the Middle East. I submitted a relatively low offer, and accompanied it with this statement, which I hoped would be conveyed to him by his agent:
"We're genuinely interested, but it's our first house and we can't afford more. This will be our best and only offer. Let's save everyone some time, and needless back and forth communication."
The agent cut her commission a little, which she could afford to do because it was her listing, and we moved in!
The seller understood transaction costs. What good would it have done him to have waited and waited for a few thousand more?
You're with me so far, but now let's take a logical leap, shall we?
If time is money, then as time passes, then a fast deal is worth more. Consequently, the price of an item should go up, shouldn't it? If it costs me more to sell it to you, you should pay me more for it, yes?
I was trying to sell another house. There was only one genuine buyer that presented himself through an agent, but his agent's strategy was to wait to submit an offer until I reduced the price. Deciding I needed a way to smoke out his interest, I raised the price by $100,000!
I knew that the multiple listing service would automatically notify the agent, so I didn't need to do anything but wait for the response.
He and his agent were flummoxed by my gambit, but she contacted me right away. Within 24 hours he made a written offer, fearing he'd have to pay a hundred-grand more for the place.
They don't teach you this strategy in real estate school!
But it's rational, if you think about it.
Consider telling prospective clients, "If you give me a quick order, this keeps my costs low, and I can pass on the savings. If you delay or I'm forced to follow-up relentlessly, then it costs me more and I'll need to pass the costs along to you. Make sense?"
This will tell you where you stand, separating the serious from the frivolous, and you'll be telling the truth.
Many negotiators foolishly believe costs will plummet if they play a waiting game or play hard-to-get.
Show them it doesn't necessarily work that way!
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Best Practices in Negotiation: Raise Your Prices!
By: Dr. Gary S. Goodman
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