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Navigate contract negotiation like a pro

Navigate contract negotiation like a pro

7
min read

Here’s the deal: there’s so much more to contract negotiation than just two parties bantering with the hope of getting a legal document signed. 

According to Harvard Law School’s Program on Negotiation (PON), knowing how to negotiate isn’t just a lucrative, business-savvy skill; it paves the way for stronger personal and professional relationships. In short, becoming an excellent negotiator is well worth your time.

Take the main cast of the hit TV show Friends, for example. PON studied (and now celebrates) the main cast’s collaborative negotiation effort. Together, they asked their studio for a raise, and each of the show’s six leads walked away with $1 million per episode for the last two seasons of the show.

<iframe src="https://giphy.com/embed/TduAOfjJ0SlQMzH8oQ" width="480" height="400" frameBorder="0" class="giphy-embed" allowFullScreen></iframe><p><a href="https://giphy.com/gifs/Friends-season-2-episode-10-the-one-with-russ-TduAOfjJ0SlQMzH8oQ">via GIPHY</a></p>

In this article, we’ll walk through some of the basics of contract negotiation to help you make millions (we hope), but more realistically, land on great terms with the people you negotiate with to maximize your contracts. Let’s dive in!

<a href="#quick-definition-contract-negotiation" class="anchor-link">Quick definition: what is contract negotiation?</a>

<a href="#why-is-it-important-to-negotiate-contracts" class="anchor-link">Why is it important to negotiate contracts?</a>

<a href="#when-should-you-negotiate-contract-terms" class="anchor-link">When should you negotiate contract terms?</a>

<a href="#typical-contract-negotiation-process" class="anchor-link">What does a typical contract negotiation process look like?</a>

<a href="#tips-and-best-practices-contract-negotiation" class="anchor-link">Tips and Best Practices for Contract Negotiation</a>

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A quick definition: what is contract negotiation?

Contract negotiation is the discussion of terms and elements in a sales contract to arrive at a mutually beneficial agreement for all parties involved. Sales contracts are legally binding documents, hence the need for negotiations, as they allow all involved parties to have their concerns heard and their needs met. 

At its core, a contract negotiation also seeks to iron out any potential areas of conflict to ensure a smooth business relationship. For this reason, both parties need to examine and discuss the terms of the contract thoroughly so that no one is blindsided by unfamiliar expectations.

Negotiation occurs before a final contract is drawn for both parties to sign. Some examples of scenarios needing contract negotiations are as follows:

  • Real estate contract negotiation: Buyers may negotiate prices with sellers, which typically occurs after inspections and assessments of repair work that needs to be done.
  • Supply agreement contract negotiation: Businesses may discuss terms with a third-party vendor or provider to ensure that delivery costs and payment options are clear from the get-go.
  • Business acquisition contract negotiation: Companies looking to buy another company will always discuss the terms of the acquisition before finalizing the contract.

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Why is it important to negotiate contracts?

As mentioned earlier, contract negotiation is a crucial step in the beginning of a business relationship between two or more parties. It ensures that the terms are beneficial for everyone involved and that partnerships are free of any confusion and conflict.

Negotiating contracts also allows all parties to surface their desired terms and agree or disagree on what’s feasible. This prevents an imbalance of power in partnerships wherein one party may have an unfair advantage over another. 

Most importantly, contract negotiation can make or break a partnership and will set the tone for future interactions. Negotiations during this stage will determine whether a contract will be finalized and eventually signed, or if both parties have incompatible expectations and cannot come to a mutual agreement.

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When should you negotiate contract terms?

You can typically negotiate a contract once it has been sent your way for your review. If you and your team aren’t satisfied with the terms outlined in the contract, you can negotiate. 

Usually, negotiations will ensue if either party is not satisfied with the existing terms or if they feel that their objectives are not being supported. Additionally, things like errors in the details, outdated provisions, and contradicting terms may also be raised during the negotiation phase. 

However, it’s also important to note that if you’re absolutely satisfied with what is already on the contract after a thorough review, then there’s no need to negotiate just for the sake of it. If such is the case, then you can proceed to contract finalization and contract signing. 

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What does a typical contract negotiation process look like?

The specific steps may vary, but most contract negotiations roughly follow a similar process:

1. Present the sample contract

Most negotiations will begin after a baseline contract has been drafted and presented by one of the parties involved. The contract should outline the significant terms of the agreement. Both parties can then review the sample to make sure all of the terms are amenable to them.

2. Discuss and negotiate the terms

If there are certain terms that either party is unhappy about, then this is the time to negotiate the terms and discuss whether additional provisions can be included or existing ones can be altered.

3. Finalize and sign the agreement

Once both parties are satisfied and have come to an agreement regarding the negotiated terms, then the contract can move to finalization and approval.

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Tips and Best Practices for Contract Negotiation

Let’s go through some tips and best practices you can use to ensure a seamless negotiation:

Have clear objectives

Know what your needs and objectives are before entering a negotiation. Decide on what your non-negotiables are and whether you can provide some leeway in certain areas. 

Feel free to ask questions

The negotiation stage is the perfect time to ask questions, so don’t shy away from clarifying what’s confusing with the other party. This will help you see their side of the story and make it easier for both parties to understand each other’s needs and come up with a beneficial arrangement.

Don’t be combative

Negotiations may stir unpleasant emotions, but being combative will only derail negotiations and hinder effective communication. Instead of getting carried away, try to communicate as clearly and effectively as you can, both verbally and in writing. 

Pro tip: Read Never Split the Difference, a top-rated book by former FBI hostage negotiator, Chris Voss, for help in this department. Negotiations should never feel sour.

Practice active listening

Start your negotiation process by really listening to the other party. This will help you build trust and rapport and create a solid foundation for your negotiations. Don’t hog the conversations, and allow the other party to express their needs clearly and fully, too.

Label their fears upfront

According to Chris Voss, labeling your counterpart’s fears upfront disrupts the power of negative emotions and gives you an upper hand in the negotiations. This will allow you to position what you want out of the negotiation in a more appealing light and help you gain the other party’s trust. 

Use “how?” questions to get them to come up with solutions

Asking calibrated questions that start with “how” or “what” often nudges your counterpart gently in the direction you want, allowing them to think of other solutions—without you spoon-feeding the information or insisting on what you want.

Use a range instead of specific numbers for pricing and salary

When talking about figures, use a range instead of a specific number, especially if you’re looking to have them agree to higher numbers. For example, if you’re targeting $50,000, say $50,000 to $70,000—and they’ll likely come back with $50,000 or higher. If you say $50,000 flat out, psychology dictates that the other party will probably offer you less.

Show up to contract negotiations more prepared with Streak

Any negotiation requires research and preparation—which is why a tool like Streak can be your secret weapon during the negotiation stages of your deal cycles. When you send contracts and track deals in Streak, you have all of the information you need truly in just one place; you can pull up call notes, files, and previous emails in seconds right in your inbox.

Plus, you can set up tasks and reminders so that you never forget follow-ups or miss critical renewal negotiation opportunities. Streak can’t handle your actual negotiations for you, but we can make sure you have what you need at your fingertips so nothing falls through the cracks. Add it to Chrome today!

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