A key to successful contract negotiations is being able to think holistically about the deal from both sides. Sometimes a contract negotiation simply comes down to price, but, more often, than not, there are other important matters to consider. By identifying the benefits and risks for both sides in advance, you will be able to better plan for getting what you want.
Identify Benefits
Ask yourself – Why am I entering into this contract? What is the value that is being provided to my business? Often a transaction can provide multiple benefits to your business. Therefore, it is helpful to determine and prioritize those benefits. In other words, which benefits are critical for your business and which ones are just nice bonuses? Once you’ve identified these benefits, go on and do the same exercise from the other side’s point of view.
Identify Risks
Just as important to identifying and prioritizing the benefits, it is crucial for you to identify the risks. A contract cannot address every possible future situation, so your first step is to identify the most important risks to your business. You can do this by assessing risk both on probability and impact. Consider the high probability scenarios, those that have a likely chance of occurring; high impact scenarios, those that can make or break your business. Once you have identified the risks, sort them into four categories: (a) high impact, high probability, (b) low impact, high probability, (c) high impact, low probability, and (d) low impact, low probability. From here you can prioritize which risks you can or cannot live with. Then, once you complete this exercise, do it again, but from the other’s side’s perspective.
Strategize
Now you know the benefits and risks associated with the proposed contract. What next? Strategize!. Plan in advance. What you are willing to trade with the other party based on the analysis you completed?
Also, if you find yourself in a stalemate, take a step back and see if there are any additional benefits/risks or new information that may have not been in play before, but that you can now bring to the negotiation. If you are facing a term that you find unacceptable, ask yourself what extra value do I want or what other risk do I want the other party to take that will compensate me for agreeing to this term. Alternatively, if the other side is the party objecting to a term, ask the inverse question. What extra value can I provide and/or what additional risk can I absorb to make the terms more palatable for the other party? Keep in mind that these tradeoffs do not have to be directly related to the issue causing the stalemate. It can come from other parts of the contract.
By assessing the benefits and risks for both parties in the contract, you will approach the negotiations with a high-level understanding and with the tools needed to reach an agreement which maximizes your benefits and minimizes your risks.
At Ser & Associates, we regularly draft and negotiated contracts for our clients. If we can assist you in negotiating your next contract, please contact us at 305.222.7282 or [email protected]. Also, please be sure to visit us at www.Ser-Associates.com and follow us on Instagram, Facebook, and/or LinkedIn to learn more about how we can assist you and your business!
