Trying to get your head around the idea of freemium? Just think cloud storage service Dropbox and note-taking and archiving application Evernote, both of which have been phenomenally successful. The word ‘freemium’ combines the two aspects of the business model: ‘free’ and ’premium‘. It’s a business model that works by offering a basic product or service free of charge (typically software, content, games, web services), and a fancier version that costs money. Fancy can mean more features, more functionality, more space, more usage, more seats, more time, or no advertisements.
The business model was first defined by prominent New York-based venture capitalist and blogger Fred Wilson in 2006: “Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.”
Wilson offers these examples:
- Skype – basic in network voice is free. Voice mail and calling plans that allow users to dial landline phones require a monthly fee.
- Flickr – a handful of pictures a month is free, heavy users convert to Pro
- LinkedIn – reeled in users with free content, but has boosted sales by adding features that customers have to pay for, such as recruitment services.
Wilson points out that this business model has been around for a long time. Shareware always used a similar model, and many successful software companies have been built on it. The customer is only a click away and if you can convert them without forcing them into a price/value decision you can build a customer base fairly rapidly and efficiently.
Wilson points out that it’s important to ask as little as possible in the initial customer acquisition process. Asking for a credit card even though you won’t charge anything to it is not a good idea. Nor is forced registration. You may want to do some of this once you’ve acquired the customer, but not in the initial interaction.
He offers this advice: “Don’t require any downloads to start. Don’t require plugins. Support every browser with any material market share. Make sure your service works on various flavours of Windows, OSX, and Linux. In short, eliminate all barriers to the initial customer acquisition. And make sure that whatever the customer gets day one for free, they are always going to get for free. Nothing is more irritating to a potential customer than a ‘bait and switch’ or a retrade of the value proposition.”
The big idea is to make sure your free service is loved by customers. Only then do you communicate the value that comes with the paid service and that will have you converting to paying users. The best examples of this business model are when the customer understands why the paid service has to cost money. More storage costs for photos, virtual storage, or termination costs on other carrier networks in the Skype model, are good examples.
What you gain on the swings
Much has been written about the psychology of free. Among the most instructive texts are Free: The Future of a Radical Price by Chris Anderson and Predictably Irrational by Dan Ariely. Both authors note that free immediately reduces the mental barriers for the customer. Free makes people think that they have “nothing to lose.” That makes free a huge accelerator of adoption. The flip side of this is that after using the product for free, it is very hard to get the customer to start paying for it. This is why it is so critical to choose your premium features wisely.
But is it for you?
Freemium expert Uzi Shmilovici, CEO and founder of Future Simple, which creates online software for small businesses, cautions that before you think free (or rather freemium) is the best model for your business, you need to answer a few difficult questions:
- How big do I want my company to be? If you are looking to build a lifestyle business that’ll make you R80 000 a month and you have a good product, you can probably do without freemium. If you want to build a dominant company that has a substantial market share, Freemium can help you accelerate adoption.
- What is the value of the free users? Across all successful freemium companies, there is a way of making money or saving money from the free users. Either by saving on marketing costs (Dropbox) or by making money from ads or data (Pandora, Evernote, Mint) or both. Figure out how to turn your free users into savings in marketing costs or revenues from third parties.
- What is the cost to serve free users? This is a critical aspect of the model. If you spend a lot of money or time servicing free users, you are going to lose money. The cost of servicing free users must be lower than the rand value they provide.
- How big is my market? “The easiest way to get one million people paying is to get one billion people using,” says Phil Libin, the CEO of Evernote. Free adds another conversion step on your way to revenues. You need a big market to have enough people who will pay you at the end of the day.
- Is there value to one customer from other customers using the product? This will determine how many new users the free users will refer. There are three levels of value:
- Inherent value – You can use Skype only if the person you talk to uses it. The same is true of Dropbox. In this case, freemium can be a powerful strategy.
- Added value – You derive the value of Linkedin from other people using it. In this case, freemium can help you gain traction if you use an effective invitation mechanism.
- No value – You don’t care if someone is using Evernote or not. The only reason to tell another about the product or service is if they think it’s awesome.
Freemium and your business
Still wondering whether you can use freemium to your business’s advantage? Writing on Freemium Blog, freemium business model expert Peter Froberg has isolated a few characteristics of freemium success:
Quality free products
The most important condition for creating a successful freemium model is that you have a great product that people want. It will be the engine that drives your freemium-based business. Without inherent value your freemium will not get off the ground.
So instead of giving away a sample track of the music, let people download the whole album. Instead of letting people take a look at your worksheets, let them have all your tools for free.
Only a small percentage of free users will usually buy something. In order for this to make financial sense, the expense of distributing the free product should be very minimal. Digital duplication ensures virtually no cost for copying and distribution. If you want to distribute one million pieces of something, R1 as a unit price is quite a substantial amount.
Freemium depends on generating attention with the free product; then to sell premium products or services to some of the free users. In most cases only a small percentage of the free users will buy something. This is fine if it is a small percentage of a large number.
Creating a successful business
Froberg says his research has shown that there are two methods that should be incorporated to ensure freemium success:
Adapting the business model
If your free product is a quality product that people want, it will generate attention. You need complementary products to generate revenue from this attention.
Ensuring a wide distribution
The economic logic behind freemium is that, “When the supply of a product increases, the demand for its complementary products also increases.” The free product drives off the revenue-creating products and more free users means more paying users. Since additional distribution of a free product costs close to nothing, the success of a freemium business will increase with the number of people using it.
Helping This Along
- Actively promote the product
Making sure that more people get to know about it will lead to more users.
The generous nature of freemium fits very well with the emerging field of social media, and social media marketing has proved to be a good way of promoting a freemium product.
- Remove barriers for people to access the product
If it is hard to access your free product, some people will stop before they get to it. Not only will these people not be exposed to your thoughts, they will also have wasted time.
The cost of customer acquisition
Some people argue that freemium significantly increases the customer acquisition cost. The argument is that it costs money to acquire every new user, while only a few end up paying. Shmilovici says it’s important to consider what happens to the total amount of premium users in the case of freemium.
The total amount of premium users depends on three factors:
- Traffic – the amount of people visiting your site. People like to recommend them to their friends. With a freemium model, you will most certainly see an increase in traffic for the same marketing spend, since people will spread the word. You can further enhance the social media benefit by giving people easy ways to share their excitement and implementing a smart referral programme.
- Sign-up conversion – how many of them sign up. It’s likely that you’ll increase your conversion to users with a free offering, since users don’t need to enter their credit card details up-front. Unlike limited trial periods, your users don’t have to worry that their trial will end before they have a chance to try the product. Also, “Zero is a hot emotional button,” as Dan Ariely mentions in his book Predictably Irrational.
- Premium conversion – how many of those who signed up become paying members. Conversion to premium may drop since you might get a higher proportion of low-quality sign-ups. However, this is not the only factor at work. With freemium, people have a chance to use the product long enough to see the value in upgrading. At the same time, while they are using the free product, they build up switching costs. Eventually, they might be more likely to pay. Here’s Evernote CEO Phil Libin’s approach to this subject: “We’ve got the rest of your life to make money off you.”
To succeed in freemium, you need the increases in traffic and sign-up conversion to compensate for the drop in premium conversion rate, if any. In successful freemium companies, the boost to traffic and adoption significantly reduced the customer acquisition cost, which in turn led to great results.
SA’s first freemium HR and payroll software for business
Control your HR and payroll costs with free software that lets you choose additional premium functionality,
on a pay-as-you-use basis.
In September last year, employee management software developer PeoplePlus released the first HR and payroll software built on the freemium model in South Africa. Since then, almost 2 000 users have registered, with an additional 300 signing up every month.
“The cost of developing the software was high, but the cost of distributing it to users is relatively low,” says Rodney de Villiers, CEO of PeoplePlus. “We offer modules, such as disciplinary procedures and the ability to print payslips free. Users pay only for premium modules, and for what they use. There are no contracts, no big upfront payments, and no expensive consultants.”
De Villiers says the freemium model has been used widely for consumers, but less so in business applications. “The offering enables the business customer to select any high-value or efficiency functionality, in a modular manner. That means they can directly control their costs.”
The PeoplePlus offering is targeted at businesses with between one and 200 employees, but companies of all sizes can use the application.
Benefits for users include the sizeable reduction of the total cost of funding and operating your HR and Payroll IT, such as power, security, updates, back-ups, anti-virus, lost data, stolen equipment, staffing and consultants, not to mention your time and stress. When it comes to support for free users, De Villiers says telephone support is offered as a premium service. “The application is easy to use, and comes with a number of practical ‘how to’ guides. If users need support, they’ll only pay for it when they want it.”
PeoplePlus was developed by Talenger Holdings, a company that De Villiers launched in 1998, and which specialises in human resource technology for large businesses. “PeoplePlus is basically a scaled-down version of the proven solutions that Talenger has been developing for years. We analysed the local market and saw that more than 90% of businesses employ up to 200 people. That was how we identified a gap in the market for PeoplePlus. The freemium model has been proven and we are confident that the application will become increasingly popular because of its pricing and functionality.”
For more information, visit www.peopleplus.co.za
How freemium is changing industries.
In recent years, several industries have applied the freemium model with great success. This is particularly true in music and publishing. A great example is the rock band Nine Inch Nails. Fans could download their latest album Ghost l-lV for free and buy a range of other products from the extended $5 download, to a $300 limited deluxe boxed CD.
Flat World Knowledge is a company that publishes university textbooks. Where it differs from competitors is in its business model. Instead of only selling expensive paper versions that change every two years, Flat World Knowledge releases the books online for free download. Students and professors have access to quality textbooks at no cost. The publisher makes money from selling a range of other products, such as a printed textbook, audio books, e-book for a device, individual chapters to print, or study aids.
Free-to-play online games, often overlooked in the hype around social and casual games, are growing just as fast as their counterparts. Much of this has to do with the industry’s transition from paid to freemium models – not only in online gaming, but for web and mobile apps on the whole.
Free: The Future of a Radical
Price, by Chris Anderson
Predictably Irrational: The Hidden Forces that Shape our Decisions, by Dan Ariely
How Feyi Olubodun Uses The Enemy To Create Winning Campaigns
People don’t buy from companies, they buy from people. If you really want to build a successful business, you need to consider the human element in purchasing decisions.
- Player: Feyi Olubodun
- Company: Insight Publicis Nigeria
- Position: CEO
In 2013, the Malaria Consortium approached Insight Publicis Nigeria to help them drive the rapid purchase of Long Lasting Insecticide-treated Nets (LLIN). Ordinarily, this should be easy, given the high rate of malaria cases and deaths in Nigeria — 100 million cases of malaria reported each year, with 300 000 deaths per year. People should buy mosquito nets.
There was just one small problem — in order to stimulate trial of the product, the Malaria Consortium had given away free samples of LLIN — one per household.
Instead of purchasing more nets, families merely put as many of their family members as possible under one net. The Malaria Consortium had unwittingly created a barrier to further uptake.
Here’s what Insight CEO, Feyi Olubodun and his team did: They ran a seven-day campaign promising consumers that they would watch the first live broadcast of a live birth on TV. It was scandalous, and earned hundreds of millions in free media coverage. Government even got involved, trying to shut the project down, so the team had to let them in on the strategy.
Social media became heated, debating the morality of watching a live birth on TV.
Consumers watched a woman, Blessing Madaki, for six days leading up to the birth of her baby. On the seventh day, they watched her being wheeled into the labour room. Millions of Nigerian viewers across the country held their breaths. And then they saw an animation of Blessings’ unborn child refusing to be born, unless his father bought an LLIN. The child’s reason was simple: He didn’t want malaria to withhold him from fulfilling his destiny in life.
- 95% of viewers were willing to buy
- Purchase of LLINs went up over 10%
- 42% of traders said it was a result of the campaign, because 32% of buyers mentioned the campaign at the point of purchase
- Usage went up by 12% and remained high, even after the rainy season
- The client’s objectives had been to raise awareness by 20% and purchase by 10% over nine months. The campaign was a resounding success.
What caused the shift?
Consumers perceived on a subliminal level that malaria was the enemy of the destinies of their children and loved ones. Malaria was the enemy; LLIN the solution.
What can brands do with this? It’s simple. Brands must answer the question: What is the enemy of my target consumers, and how is my brand positioned relative to this enemy?
The success of the LLIN campaign was based on a deep understanding of consumer psyches and the fear triggers that will lead to a purchase.
In his book, Mastering the Complex Sale, Jeff Thull explains that successful sales are the result of navigating the psychology of change, bringing your customers from the positive present to a negative future in absence of your solution. In other words, highlighting the risks of not purchasing. The LLIN campaign is an excellent example of this theory in action.
However, as Feyi and his team soon learnt, while fear can be an excellent motivator, it isn’t always the best way to approach a campaign.
“We tried to use the same approach for another brand and it didn’t work,” he explains. “The team presented to the client and half the client team started crying. It’s a delicate approach to navigate. Fear is a powerful motivator, but you can also strike too deep. This pitch was for an NGO trying to raise awareness for supporting children and preventing infant deaths. Our idea was to ask parents if they’d like to save money for their children’s tombstones — if you wouldn’t do that, why not use the money for something else that preserves your child’s life? But the response was so heart wrenching, it actually didn’t work.”
So, what can you learn from these examples that you can use in your own business and marketing campaigns?
First, fear is a human emotion that can be used in marketing — but it has to be used wisely. “It’s important to remember that although we all love to use terms like consumers and target groups, at the end of the day we are all humans, and as such we have the full complement of emotions that come with being people — fears, hopes, dreams — we need to recognise that humanity when we market our solutions.”
Feyi understands that everything we do comes from a place of happiness, anger, fear or hope — even the most rational business decisions have an element of emotion, from where we choose to spend our money, to who we want to do business with. “One of the campaigns I’ve always loved was a Volvo safety campaign. As the car hit a barricade, the driver’s family’s hands all reached over his seat to hold him in place and save his life — that’s why we wear safety-belts — for the people we love. It was an incredibly powerful campaign, because it tapped into our emotions.”
Understand your customer
Whether your focus is on consumer products or B2B solutions, Feyi believes too many marketing elements are focused on the surface, pushing products. “We need to start looking deeper at the motivators behind purchases,” he says. “Why does your customer buy airtime? Who do they need to speak to? What’s the emotion behind what that airtime allows you to do?
“Marketers shouldn’t be afraid of tapping into emotions. You’re selling to human beings, and that’s why they will buy your products — not because they are consumers, but because they are people.”
But as Feyi’s own experiences have shown, you can’t just push for emotions without really understanding who you’re speaking to. “Businesses need to really analyse their communities: Who are you focusing on? What are their fears? What do they really care about? And how do you figure this out without making assumptions?”
Another big lesson is that the more you can listen to your customers, the more you can subtly adjust your product until you’re offering something your customers really need.
“If you have a product that touches directly on the humanity of your target, you’ve already gained a lot of mileage — media campaigns only amplify what your product already is. They can’t sell something no-one wants — at least not with any longevity.”
Feyi advises that if you have a clearly defined target audience, the next step is to take an ethnographic approach to really understanding them. “You need that,” he says. “If I want to sell to people in Soweto, I need to go and visit Soweto. How do they consume the products that may or may not exist in my category? What do they care about? I need to get a real feel for how they live and work. You’ll be amazed by what you’ll learn simply by immersing yourself in your customer’s environment.”
But take care. Feyi advises that if you take the time to go and speak to people, you need to do so authentically. “I can’t arrive in a rural area in a suit and expect the community to treat me naturally. Respect the community you’re entering, and blend in. Take a participatory approach. You get non-participatory observation and participatory observation, and participatory observation is always of more value in a marketing environment.
“Participatory observation breaks down barriers. Take language for example. Even if you only try and speak a few words of someone else’s language, you’ve already broken down an important barrier. You’re showing a willingness to learn and a respect for the people you’re conversing with.”
This is as true in a consumer environment as it is in a business environment. “If you’re going to pitch to a client, you need to speak their language. You need to understand their landscape and industry.
“There are so many ways to connect with people, you just need to find your similarities. You need to find what touches you both. Find the commonalities in your humanness.”
When Feyi Olubodun, CEO of Insight Publicis Nigeria, one of West Africa’s leading creative agencies, witnessed one too many cases of brands failing in the African marketplace he began to ask himself questions: Why did brands, both global and local, so often fail to connect with the African consumer? What was it about the African market that brand owners were not seeing?
The result of these questions is Feyi’s recently published book, The Villager: How Africans Consume Brands.
The Villager is available on loot.com and at all leading booksellers.
How To Immigrate With Your Family By Starting A Business In The UK
The simple way to make your entrepreneurial dreams come true in the UK.
Many people, especially those with families, are reluctant to up sticks and move to the UK. These would-be movers are often worried that they will not be able to secure employment in the hugely competitive UK job market. This source of stress alone is enough to discourage some from pursuing their dreams of living in the UK. But, there is an innovative and accessible solution.
The UK has several visa classes aimed at individuals who wish to invest in the country. These give an individual the right to live and work in the UK with their families, if they make a defined investment. A visa that interests South Africans is the Tier 1 (Entrepreneur) visa. We have developed our UK Tier 1 Entrepreneur Investment Programme to help South Africans looking to immigrate to the UK alone, or with their families.
The basics of the Tier 1 (Entrepreneur) visa
To be awarded a Tier 1 (Entrepreneur) visa, you will need to invest at least R3,5 million (£200,000) in an existing UK business or one you start up. There are certain other requirements, but these are not particularly onerous, and most investors will qualify if they submit their application correctly.
The entrepreneur visa allows you to live and work in the UK, and take dependant family members with you, defined as your partner and your child under 18. If you have the capital, or are willing to liquidate your assets in South Africa to raise it, the Tier 1 (Entrepreneur) visa is a great way to relocate your entire family to the UK.
Do note: You will need to make specific applications for each dependant, so it is vital you consult with an immigration expert before beginning the application process.
You’re not just immigrating, you’re investing in the UK
By starting or investing in a UK business as part of our programme, you will be granted the right to live and work in the UK, and earn an income from that business.
The business you invest in will want you to play an active role, not just contribute seed capital. If you want to invest in a business without being an active director you will be allowed to do so, but you may not be eligible for the Tier 1 (Entrepreneur) visa.
Another restriction is that you cannot hold this visa and work for a business other than the one you are invested in. But, your partner will be allowed to work in whatever field he or she pleases.
How do you choose the right business to invest in?
There is always an element of risk when investing in a foreign business, particularly when you’re thirteen thousand kilometres away from the country you’re investing in. It’s important to understand exactly what you’re investing in before you take the plunge.
That’s why our UK Tier 1 Entrepreneur Investment Programme is hugely beneficial. It matches your investment capital with a pre-approved investee business. We’ll make sure that your skills are matched with an appropriate venture so you can be an active director of that business.
We’ll also handle your visa applications, providing you with a comprehensive immigration and investment solution. Our partner’s list of investee businesses is over 200 strong, giving you an array of choices in various industries. This allows us to pair you with the business that best suits your investment goals and skills.
But what if you have a successful business in South Africa?
It’s no secret — emigrating from South Africa is difficult for many families who have deep roots and thriving operations. There’s no reason why you can’t keep your business in South Africa as well as relocate to the UK.
Nothing restricts a Tier 1 (Entrepreneur) visa holder from owning and overseeing businesses in other countries while they are on this visa. Many clients choose to relocate to the UK while ensuring that their original business continues to operate. In this way, you will be supplementing the income from your UK investment with revenue generated by your South African business.
You can hold British and South African passports if you apply for your British citizenship in the correct manner. You must obtain permission from Home Affairs in South Africa to avoid having your citizenship revoked. Retaining your South African citizenship will make it much easier for you to continue running a business here.
Talk to us today
There are compelling reasons to move to the UK — a brighter future for your children and a more stable country in which to retire. Our comprehensive solution will ensure you get the most out of your relocation.
If you’re thinking of immigrating to the UK or investing offshore — either or both — we can help.
8 Negotiating Tactics Every Successful Entrepreneur Has Mastered
How you would negotiate if you were talking for the other side? Now you know how your offer looks to them.
Deep down, we’re all a little greedy. We all want the best outcome for ourselves. We can’t help but consider what’s in our own self-interest any time we negotiate a deal.
But to become a truly successful negotiator, you have to learn to put aside pure self-centeredness. Because if all you care about is serving yourself, you’ll blow the deal before you even start.
Negotiations are a delicate balance of give and take. Learning to strike this balance is necessary for any entrepreneur hoping to build a prosperous business. It takes time and practice and whole lot of patience to hone a winning strategy. And yet each deal is unique and needs to be approached correctly, which is why a one-size-fits-all approach will never work for long.
Here are eight of the most important skills every entrepreneur should learn to become a master at negotiations.
1. Do your prep work
Successful negotiations are built on solid prep work. This means you know something about the parties involved, you’ve done a little background checking, you know about their business and maybe you’ve even talked to others they’ve worked with to get an idea of their strengths and weaknesses.
The same is true if you are on the other side of the table and are looking to invest in a product or service. You should have a solid understanding of the pros and cons of the commodity they are selling. The bottom line is, you need to have a good idea of who you are dealing with and what they can offer.
You should always go into negotiations with your best foot forward. You should be well rested. You should have eaten something (being “hangry” can swiftly detonate any negotiation). You should show up on time – maybe even early, so you aren’t walking in feeling rushed.
If you’ve done the above, you should be feeling positive and are going in clear-headed and confident. You will have the stamina and energy to get this deal done.
2. Consider all the details of the opening offer
The opening offer usually acts as an anchor for negotiations. It’s also where the details get hammered out, so it’s important that it’s done carefully and thoughtfully.
The basic elements of an offer include the offer price, the work being proposed, what goods or services are included, when it will all be delivered and if there are any performance incentives, warranties or terms and conditions. Obviously, price is a key component to any deal, but keep in mind the other details. They can matter nearly as much in the long run.
If you are the one initiating the opening offer, this is your chance to set the stage for the negotiations ahead and start with the upper hand. You won’t get what you don’t ask for, so be bold! If you’re on the other side of the table, the offer is key to seeing how close together you are.
Know your bottom line – what are you willing to accept? And remember to take a close look at the details. What else are you getting for your money and what else are you potentially signing up for?
3. Check your ego and emotions at the door
While you should have confidence and assurance because you’ve done your prep work, you also have to check your ego at the door.
Letting your emotions run the show will never serve you well. In fact, you should be going in feeling as neutral as you can about the situation. Leaving your ego behind will free you to think objectively during intense bargaining. You can then negotiate from a standpoint of flexibility.
To be successful you have to be able to think clearly in stressful situations and be willing to work to find common ground. If you walk in with a middle-of-the-road attitude, you’re more likely to strike a balance between getting what you want and not giving away too much.
On the other hand, you don’t want to give something away without getting something in return. Losing your ego and putting your emotions aside will help you find right path forward.
4. Play the game rather than letting the game play you
If you’re entering into high-stakes negotiations, it may be helpful to run through possible scenarios with a friend or colleague.
This will help you feel less nervous, and it may also show you objections to the offer that you hadn’t thought of, or help you see a side of the deal that you hadn’t considered.
Playing through the scenarios, even if it’s just in your own mind, may help you feel less attached to the outcome. In order to treat the whole thing as a game, you should care…but not too much!
Having a little apathy will help you stay neutral and keep your feelings in check. And remember, negotiations are like anything else: the more you practice, the better you’ll be.
5. See your strengths and weaknesses clearly
Self-awareness is key when you begin negotiations. You are essentially looking for the other side’s strengths and weaknesses. Not in a cruel way, but to help you determine your next play.
At the same time, you must also be aware of your own strengths and weaknesses, so you don’t allow yourself to be exploited. Try to take an honest inventory of your strong points and vulnerabilities.
If your company is small, what is its growth potential? Are you able to be more responsive to the market than a larger company? In short, what can you offer that the other side can’t, and what can the other side offer that you can’t compete with? Knowing where you stand on the negotiation chessboard will help you determine how to land the best deal.
6. Know when to walk away
When you enter into a negotiation with the knowledge that you are willing to walk away if things don’t go as planned, you come from a position of strength. That’s why staying neutral is key to a successful negotiation.
You can’t be bullied into a deal if you just leave. But often we tell ourselves that this deal means everything to us. Our ego is involved, and that weakens our position.
It’s about mindset. You have to believe that if this deal falls through, you aren’t losing an opportunity. You are keeping that space open so when a better opportunity comes along you can snag it. If you force a bad deal to happen, you are stuck.
Related: Let’s Make A Deal
You are no longer able to grab hold of something better. And there is no shortage of business out there. So if you are pinning all your hopes on one deal, you may be killing future business.
7. Negotiate in good faith
Whether you’re negotiating a long-term business deal or setting up a quick sale, it’s natural to feel on the defensive when you begin negotiations. We are all protective of our interests and we want to cut the best deal in our favor.
But if you are hoping to walk away with your reputation intact, you need to practice negotiating with compassion and good faith. Engage in active listening and really hear what the other side is saying and asking for. What are the issues that are making them hesitant? Then make sure that you relay your own priorities.
This is the basis of a “win-win” solution, when both sides explore each other’s positions and walk away feeling heard and comfortable with the deal that was struck. Even if it appears that you are on opposite sides, there’s usually common ground to be had. Maybe the other side has a different goal or an opposing position. But if you look for it, you can usually find mutual gains both sides will accept.
8. Know how to close
Negotiations may feel like a game of chance, but they’re more like a game of chess. A successful negotiation requires a good sense of timing and the ability to sense the other side’s next move.
If you’ve done your prep work and are bargaining in good faith, you should have a solid idea of what they’re looking to get out of the deal. And of course, you should have a clear idea of your own bottom line. So you’re either working to bring the sides progressively closer, or the deal is going nowhere.
Ask yourself what the endgame is. Can the difference between both parties be split? If both sides are close but a few numbers are hanging up the process, what will it take to shake things loose?
If you can strike a bargain that makes sense, it doesn’t need to be perfect. It just needs to work for both parties involved. If you can get to that point, you have set the stage for the final handshake. If not, you have to be willing to walk away knowing it just wasn’t the right time.
This article was originally posted here on Entrepreneur.com.
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