In 1777, Benjamin Franklin was tasked with convincing France to assist the colonies in the Revolutionary War. He managed to do so, hammering out a deal with France that helped give Americans the firepower they needed to thwart the vast British army. His ability to negotiate helped found a nation. So naturally I aspire to be able to negotiate like Old Ben.
Not that that aspiration always took the best form. When I was accumulating a mountain of debt (see the Freedometer), I used negotiation to eke out the most bang for my leveraged buck. But now that I am on the path to debt freedom (and eventual financial freedom), I am using what I’ve learned about negotiating to catapult myself out of debt that much faster. (You can calculate your quickest path out of debt using the debt freedom calculator right here.)
Almost anything involving money, goods, or services is up for negotiation. All that needs to change is your perspective. Once you realize damn near anything is up for discussion, it’s amazing the amount of cold, hard cash you can save.
The Three Skills You Need to Start Negotiating With Success
You need three basic skills to quickly ramp up your negotiating ability:
- be informed;
- talk last;
- take a strong position
The old saying “knowledge is power” is never truer than in a negotiation. The more you know about the other side the better positioned you will be to ask for concessions—and to show the other side the value of your side from their perspective. Consider the difference in these two situations. You’re walking down the road and you see a car you really like with white writing on it saying “FOR SALE $5700 OBO.” Now imagine you’re walking down the same road, you see the same car, and it contains no mention of being for sale. Which situation would you rather be in if you want to buy the car? Clearly the first one, right? You know the seller’s immediate point of sale—$5700—but you also know the seller is interested in selling for less. You’re at a huge advantage. In contrast, when the car isn’t even marked for sale, you’re the one who has to come up with a price and even see if the owner wants to sell. These are very different starting points of your knowledge. Always think about what is motivating the other person.
This background information is so powerful that when you’re negotiating any point of a deal it behooves you to let the other person talk first, and to leave long gaps in the conversation before you speak so you can learn more. Most people are so uncomfortable with silence that they will literally start negotiating against themselves just to keep things moving. Say you’re in a conversation to buy the car above, and the seller says, “well I suppose I could come down to $5400.” Your immediate response should not be yes or no but silence. Just pretend like you’re mulling it over until the seller talks again. Walk around the car while you think. And wait for the seller to speak first. When he does, the next words are almost certainly going to be a lower price. It’s a common saying among negotiators that whoever talks first is going to cave first. And this is also just an extension of the principle that often doing nothing gives you the best results.
Finally, too many people go into negotiations thinking that they should make the most reasonable offer they can as the opening salvo so they appear reasonable. Bad move. If your first offer is the price you actually expect to pay, you are basically going in with a take it or leave it demand. It’s a recipe for you being disappointed and the person on the other side backing out of the talks immediately. Instead, think of the highest or lowest starting position you think you can take with a straight face—something you think would be crazy if you actually got that amount. This gives the other side room to get a small victory—a concession from you—while you’ve still successfully framed the starting point well above what you would ultimately accept if push came to shove. More often than not, once the other side has gotten that small win, they will accept something much closer to your “crazy” position than they otherwise would have.
For example, in one negotiation I was involved in recently, my client was willing to accept $84,000 to close the deal. Most people would frame the negotiations close to $85,000 right off the bat, virtually guaranteeing you would conclude negotiations around $85,000—or less. Instead, I asked for over $180,000. We ultimately closed negotiations around $135,000, netting the client 50% more than they expected.
Yeah, You Can Negotiate That
Think negotiating is limited to cars and houses? Think again.
Mortgages and refinancing products often appear to be without room for negotiation. The companies pull your credit score, and then come back with something that says “This is your rate” and a bunch of fine print. Most people accept this rate at face value. Don’t! This is just an opening position from their underwriters. A good friend of mine conveyed this story to me about buying his second home:
When I bought my first house, I went to the bank and felt very sheepish and went along with what they told me about my interest rate and term options. They were the only place I talked to. When it came time to sell that house and buy another one, I took a much different approach. I talked to two lenders I was interested in working with and told them up front they were competing for my business, and that I would be conveying the negotiations with one to the other. We went back and forth for several weeks while one repeatedly undercut the other until finally one gave up. The result for me was an interest rate over 2% lower than either one’s opening position.
The other good news about my friend’s story is that when you apply for the same type of credit with multiple lenders within a few days, it only counts as one inquiry on your credit report. Which means if you are going to apply for a loan, you should apply in at least two places so you can compare rates—you’ll take the inquiry hit on your credit report, but you’ll have more information which will improve your bargaining power.
Here’s another example of how you can get a better interest rate by assuming something is up for negotiation and asking. About every six months I ask my credit card companies to lower my interest rate. They almost always do—but of course they never would if I didn’t ask. Here’s how I reduced the interest rate on one of my newer credit cards by 1% in 4 minutes flat:
Boom! Talk about a win-win. And no, I don’t know why Dawn was so excited to lower my interest rate, but I sure thought she was awesome too and left her a great review! But the bigger point here is I got a much better deal just by assuming the numbers were up for negotiation. What’s stopping you from asking?
Another point here: when talking to representatives at large corporate entities, say the representative’s name several times. You should do this for a couple reasons. First, people like being called by their name and are more likely to want to help you. Second, these corporate line employees know that secret “shoppers” are testing their performance randomly and that they are likely to say keep track of names so they can repeat them in the evaluation forms they will have to fill out later. Just by saying the corporate rep’s name you can motivate them from two different directions. Do it!
Never, ever, ever pay the retail price for something in a brick & mortar store. As detailed by the Wall Street Journal a couple years ago, almost every retail product under the sun is priced with the expectation that it is going to be sold at a discount. Indeed, the stores are assuming the vast majority of what they sell will be sold for some percentage off. So what do these stores do? They set the retail price higher so that after the discount the product sells at the price they actually hope to get. If you pay in full at a brick and mortar store, you are essentially giving the store free money they never expected to get. Keep the money for yourself, and ask for a discount every time you check out! (And of course, even if you get a discount you aren’t saving money when you spend it!)
Lots and lots of professionals offer discounts on their advertised rates. This holds true for dentists, lawyers, doctors, and accountants. Even when business is good, you can usually ask for and get a discount. A few years ago I had LASIK surgery (some of the best money I ever spent!), and by simply asking if the doctor gave a discount for government employees I saved myself $800. The conversation took about a minute. Think of it this way. Imagine you are getting paid hourly what you save in the time it takes you to secure the discount. In this case, my $800/minute savings translated into an hourly rate of $48,000! You’ll never earn more than when you’re negotiating for yourself. So pay yourself first and negotiate!
Have you had success negotiating? I’d love to hear about it in the comments. Please tell your story!