How to negotiate in business part two: Your Best Alternative
Negotiation is a critical skill for business owners. Whether securing a deal with a supplier, discussing terms with a client, or negotiating a contract, the ability to negotiate effectively can significantly impact your profit.
In part one we looked at seven tactics to get the best deal for your business.
In part two we dive into understanding the Best Alternative.
This is a crucial tactic in negotiation. It represents the best course of action you can take if the current negotiations fail to reach an agreement. Understanding your Best Alternative provides you with leverage and confidence in negotiations, as it helps you know when to walk away and when to push for better terms.
1. Determine Your Walk-Away Point
Your Best Alternative helps you establish your walk-away point—the point at which you decide the current deal isn’t beneficial enough, and you will pursue your alternative. Knowing this threshold ensures you don’t accept unfavourable terms out of desperation or uncertainty.
If you’re negotiating with a supplier and your Best Alternative is sourcing the same material from another supplier at a slightly higher price but with better payment terms, you know not to accept a deal worse than this alternative.
2. Strengthen Your Negotiation Power
Having a strong Best Alternative gives you the confidence to negotiate more aggressively because you have a viable alternative if the negotiation doesn’t go as planned. Conversely, if your Best Alternative is weak, you might be more inclined to compromise.
3. Benchmark Your Decision-Making
Your Best Alternative serves as a benchmark against which you evaluate any offer made during the negotiation. If an offer is better than your Best Alternative, it might be worth accepting. If it’s worse, you know to reject it and pursue your alternative.
For example, when selling a business, your Best Alternative could be continuing to operate the business independently. Any offer that doesn’t exceed the value you derive from continuing to run the business might not be worth accepting.
How to Determine Your Best Alternative
Identify Alternatives
List all possible alternatives you could pursue if the current negotiation fails. Consider options that meet your objectives and are realistic.
Evaluate Alternatives
Assess the value and feasibility of each alternative. Consider factors such as cost, time, resources, and potential risks.
Select the Best Alternative
Choose the alternative that best meets your needs and serves as your Best Alternative. This becomes your fallback plan if the negotiation doesn’t result in a favourable agreement.
Explore More Options
The more alternatives you have, the stronger your negotiating position. Continuously look for new opportunities and options that can serve as viable alternatives.
Example of Best Alternative in Action
Imagine you’re negotiating the sale of your business with a potential buyer. Before the negotiation, you determine your Best Alternative is to continue running the business for another year, which you estimate will generate $500,000 in profit.
During the negotiation, the buyer offers $400,000 for the business. Since your Best Alternative (continuing to run the business) is more valuable ($500,000), you decide to reject the offer and either negotiate for a higher price or pursue other buyers.
Understanding and leveraging your Best Alternative is essential for making informed decisions and achieving better outcomes in negotiations. It provides a safety net, enhances your confidence, and ensures you don’t settle for less than what’s best for you and your business.
