Nobody likes to pay more for something than the next guy. No one wants to take less at the marketplace than somebody else gets. But both scenarios are common - often because some people are simply better negotiators.
See the sidebar on page BC-2 for some examples of the thousands of dollars of potential savings from negotiating better terms.
"A lot of people don't realize that almost everything really is negotiable," says Dennis DiPietre, economist with E-Markets, Ames, IA. "They think everything is like a department store where the price is stamped on every item and that's the price you have to pay."
To drive the point home that almost everything is negotiable, DiPietre says almost every dimension of any contract - production, marketing and feed contracts, for example - is open to some bargaining.
The basic techniques, as he describes later, are also the same no matter what you're bargaining for.
Anything you buy in bulk, from propane to employee insurance programs, is potentially negotiable. Initial quotes on interest rates and the terms of the loan, for example, are based on a subjective assessment, he explains.
By doing your homework, collecting information and selling yourself as being a better risk, you have the potential to lower the rate and/or get better terms than that first quote.
Realize too, that large volume producers have the power of size on their side. When you buy as much as 10 or 20 other producers together, suppliers want your business.
One negotiating point might be, "Bring the price down to a reasonable amount and I'll swing all my business your way for the next year." Volume talks and suppliers listen.
When you think of a volume discount, the homework you have to do really is to understand whether the company you are buying from is going to get a particular savings from the volume, says DiPietre. Say you take a whole truckload rather than half a truckload. A truck with only one drop probably offers some savings to the seller.
Large producers in North Carolina buy corn out of the Corn Belt on unit trainloads. The train doesn't have to stop and unload certain cars and re-hook other ones, so they can get some discounts.
The key to volume discounts, is to figure if you are eliminating some of the supplier's costs.
Do Your Homework Know from the start that the people you are dealing with are professionals. Whether a lender, a feed supplier, a packer or a car dealer, they negotiate nearly every day. They understand your business and know their negotiation limits. Expect them to also know the psychology of negotiation.
"In fact, most sellers count on you not being knowledgeable about what is negotiable and what isn't," says DiPietre. "They often don't expect you to know their profit margin or how much of it can be negotiated."
Connect with other buyers who have negotiated discounts. Talk to your peers, he suggests.
If possible, get the "list price" like you get when pricing a car. Or, if you are looking for competitive interest rates, check The Wall Street Journal for the published rates banks are charging, DiPietre adds. If you track it, you'll find your bank rate tracks pretty closely, plus a certain percentage (i.e., 1-2%).
Consultants - marketing, herd health, engineering, nutrition, accounting, genetics, etc. - can be another source of "negotiating room" information.
"In the case of interest rate and terms of a loan, you also need to learn all you can about how your lender arrives at their assessment and what parts of it are subjective," DiPietre explains. "You can then take yourself out of that 'mold' by countering those general assumptions with information that helps the lender change his stand."
You prove you are a better risk than that subjective borrower he pictures in his mind.
Part of the strategy is knowing what range the other party has, how much they are likely to move within that range and what will trigger movement.
"There is no excuse for not doing homework prior to entering into negotiation," says DiPietre. "It's the key to getting the best possible opportunity for yourself."
Some items are high mark-up. DiPietre cites an extended warranty as an example, "A salesman quoted me a price on it. I commented that I might be interested at half that price and he jumped on it immediately. Right away, I knew his mark-up was more than 100% and I probably could have even done better."
Nobody claims the research process is going to be a snap. But technology keeps making it easier.
"For $10 at a credit union or over the Internet, for example, you can get an invoice for a car you're interested in buying," DiPietre explains.
"That, plus some additional information about holdbacks and rebates, gives you a good estimate of what the dealer cost is. Knowing that, you can often negotiate a reasonable sales price which is good for both parties."
DiPietre relates his last car buying experience. It took three visits. On the last visit, he and the dealer were still $1,200 apart. As he headed for the door, the dealer dropped the full $1,200 difference, he explains. "The dealer finally became convinced this truly was going to be the last meeting. The other ingredient was that I was reasonably confident I could get the deal I was asking for somewhere else if I couldn't get it there."
But there may be more to a "good deal" than just price. Buying a car from a hometown dealer may assure more personal attention and responsibility for repairs and service after the deal is made.
Also, don't back yourself into a corner with nowhere to go. Research your position. Know your alternatives before you cut yourself off from one supplier or buyer, for example.
Win-Win Is Best Some people think they need to win every bit of negotiable room in a deal.
In the first place, DiPietre says, that's very difficult to do. Second, if you plan to have a long-term relationship with the other party, beating the other person may set the stage for revenge.
"A good goal is for everybody to leave the table satisfied," says DiPietre. "Your negotiating opponent, of course, is going to be trying to get the advantage for him and leaving you as the one being only 'acceptably' satisfied."
You don't want anybody leaving the table, then thinking a day or two later they've really been taken, he adds. A lot of people think that winning in negotiation means ravaging the other guy. You have to leave something on the table for both of you.
But don't give everything away, either, DiPietre cautions. "If you get a quick 'no' answer, rather than accepting it right off, probe with questions such as 'Help me understand that.' That way, your opponent has to justify his response and may give clues to show you there might still be room for some dealing, including additional issues which are important to the other party.
"That's also where pre-negotiation research comes in," says DiPietre.
"Without it, you are really shooting in the dark and after it's all said and done, you won't know if you won or lost."
The higher the stakes, the more research you need to do. One of the first things to realize is that negotiation is an art, says DiPietre. Therefore, like other arts - music, theater, etc. - it takes practice to be good at it.
Brainstorm Creatively Sometimes right in the middle of negotiations you're going to be hit with something you never expected.
Maybe you're dealing on a parcel of land and you thought the negotiation was all about price. Then the seller tosses in that he wants to make sure you never spread manure on the south half of the property because he has relatives living down that way.
"At that point you might have to jump in the creative zone," says DiPietre.
"You might ask if the selling party would be willing to give you an easement to spread effluent on another piece of property he owns in exchange for that assurance."
Give and take can work. Just don't speak too quickly. If your creative brainstorming requires 10 minutes of silent thinking time, or 30 minutes, don't be pushed. "You don't even have to continue the negotiation at that time," says DiPietre. "You might want to break it off and set another time to get together.
"Too many people think they have to reach a conclusion when it ought to just be the opening round where you do more fact finding and research," he adds. You may reach a conclusion at the first session. But you don't have to.
When you might be dealing on thousands of dollars difference, you can afford the time even though you may want to get it done quickly.
Consider A Pro Negotiation is like persuasion, says DiPietre. If you're not a very persuasive person, you may be better off to hire a professional to negotiate for you.
There are also things you might only deal with once every 5-10 years, or even once in your lifetime. Or perhaps it's an especially big deal. Then a professional may be your best choice.
Consultants are usually the ones who serve as professional negotiators for farmers, says DiPietre. It may be your veterinarian working on your behalf to get the best buy on vaccines and medicines. Your accountant or other tax specialist will negotiate with the Internal Revenue Service (IRS), if it becomes necessary. A consulting engineer could negotiate with contractors on a building project.
If your own consultant isn't a professional negotiator, he will probably know some others who have that special skill.
"One of the fastest growing areas in real estate purchases is the buyer's representative," says DiPietre. "Realize that when you go to a real estate agent to help you find property or to deal on it, that agent is really working for the seller, not for you. Even though they may give the impression they are working for you, they are sizing you up for the seller and communicating things about you to the seller.
"The buyer's representatives are trying to even things up by representing you as the buyer," he explains.
Just don't be afraid to ask for help. Start with a consultant you know to get ideas of who specializes in specific areas. There are consultants in many areas - nutrition, financial, marketing, veterinarians - who could serve as a good negotiator on your behalf.
Negotiating Contracts How to best negotiate contracts, whether they cover production, marketing, feed or anything else, concerns most producers. DiPietre says the tips in this article will work in those negotiations, too.
The added advice he gives is to look at anything you can provide that is extra. First, know the traditional practices, he says. Then, let's say you're finishing gilts for a breeding stock producer. There may be additional labor required for "genetic selection" duties. Beyond just feeding, they may require you to check underlines, collect growth data and other things that aid in their selection. Be sure to negotiate payment for those extras.
"The key, again, is to do the homework," says DiPietre. "Ask a veterinarian, production consultant or economist how much more time those extra things will take, for example."
DiPietre has found the Internet to be a wealth of information. "It's powerful for research," he says. "The National Pork Producers Council (NPPC) Internet site is a great source of information, including a lot of information on contracting."
NPPC's Internet address is www.nppc.org. Or contact NPPC at (515) 223-2600 or write NPPC, P.O. Box 10383, Des Moines, IA 50306.
The bottom line on negotiation is that you can probably sell higher and buy lower by sharpening your negotiation skills. Hopefully, you'll never look at sticker price quite the same way.
How much is it worth to be a better negotiator - in terms of money in your pocket?
Every situation is different, of course. It depends, among other things, on the size of your operation and your negotiation ability.
But if you're feeling ho-hum about the prospects of negotiating, consider a couple of examples.
Say you're going to borrow $1 million with annual payments to be made over the next 20 years.
The lender says the interest rate will be 8% and the annual payments will be $101,852.
You tell the lender not only are you a better customer than that, you're a better risk than the people paying him 8%. Through negotiation, you settle on 7.75% - just a quarter of a percent better. Your payment drops to $99,965, or $1,887 less per year. That's $37,740 less total payment over the 20 years.
But that's not all. That's where "time value of money" comes in. It has three components - money, time and interest. The concept is simple. With time and interest, money grows.
Here's An Example One way or another, you're going to invest that $1,887 you save every year. Whether you put it into a savings account, pay off debt faster or use it for expansion, it's going to earn you additional money.
Invest $1,887 each year for 20 years and you'll have $86,353 at 8%. Even if you get only 6% return, it will grow to $69,414. But if you get a 15% return, like a lot of producers shoot for, you would have $193,311 at the end of 20 years.
That's what that negotiation would really be worth.
Tons Of Savings Let's say you use 8,000 tons of feed annually. If you grow some of it, you may be negotiating on seed, fertilizer and chemicals. You'll likely negotiate on quality and price.
Maybe the savings from the various negotiations are $2/ton; perhaps it's $5. Even if it's only 50 cents, you'll save $4,000/year. If it's $2-5, you cut your feed cost by $16,000-40,000 a year.
If you apply time value of money, like in the previous example, you could be talking millions of dollars over 20 years.
Those examples of potential savings should make the idea of negotiating exciting and the process of doing it seem like less of a hassle.
Realize that the person you are negotiating with knows those numbers, too.
When the stakes are high, your negotiation opponent is going to be tough. Use the ideas in this article to help you be just as tough.
Mike Williams is a farmer at Higginsville, MO. He used to raise purebred hogs with his father, selling more than 400 boars and 700 gilts annually.
He still farms about 450 acres of row crops and has a 60-cow herd of purebred Simmentals.
Williams is also an auctioneer. He auctions cars at dealer sales three days a week and about 50 livestock sales a year, mostly on weekends.
In addition, he has a small car dealership where he sells mostly trucks. Williams offers a few negotiation tips he has learned in the trenches.
Don't Corner Yourself "It's better to negotiate for a middle ground than to start out by firmly saying, 'Here's the deal, take it or leave it,' " he explains. "Maybe a dealer is asking $8,000 for a used pickup and you say $6,800 is the most you will pay and walk out when the dealer stays solid at $8,000."
In a case like that, both probably make a mistake in taking a too hard-nosed approach, says Williams. If the buyer goes back in, it's not only a little humiliating but he has also tipped his hand that when he sets a price he says is the top he will pay, he doesn't necessarily mean it.
If the dealer calls the potential buyer and asks him to come back in "to talk about it," the buyer is likely to get the preconceived idea that the dealer will come "all his way." That can close the door to further negotiation.
"Anytime you're dealing for anything," says Williams, "when the deal is struck, it's important that both parties feel good about it."
But he warns the novice negotiator to be careful with that rule.
"It's important to stand on your position until you feel the only way to move toward a settlement is by compromise," he explains. "A sixth sense of logic will tell you when it's time to relinquish one position and move to another. In other words, look out for yourself throughout negotiations. But don't lose the deal if it is close to what you want because another one may not come along that suits you as well."
Shop Around Shopping around once you know what you want is good advice, says Williams. But, like some of his other examples show, you can go too far with that, too.
"I've seen people shop until they wear themselves out; they get tired of it," he explains. "They give up and write a check just to have the whole thing done. Or they change their whole criteria and don't buy what they need. Once you get worn out, you can be easy prey for anything or anybody."
Auctions can be a good place to analyze negotiation personalities.
"You may be watching a guy at an auction trying to buy boars, he has already bid on several and didn't get them," Williams says. "You know you're getting to the point where the quality of the boars is going to be taking a step down.
"In this case, the buyer needs to know that for another $25 or $50, the value he will get far exceeds what he may save on a lower end purchase."
The key is to be able to evaluate quality and its relation to price. You don't want to negotiate yourself out of quality just to get the price you had in mind.
Humor can be another way to get your point across in negotiations, says Williams. The old saying, "Much truth is said in jest" can be a powerful tool in making a point, whether it's about your position or the opposing position.
Be honest in your negotiation endeavors, he adds. "Not much can kill your chances any quicker than a slight of hand move on either side. It will be detrimental for current negotiations and will always throw up the red flag on future negotiations for a specific product or service."
Play The Whole Game Williams likens negotiation to a star football quarterback. If he was sacked on the last play, he doesn't let it affect the next play. If the last play gained 50 yards, he plays the next one the same as if there had been no gain.
"Negotiations are like any other kind of competition," says Williams. "If you lost on the last one, let it go.
"One of the worst things you can do is to try to make up all the lost ground on the next negotiation," he says. "Also, don't figure to always equal the last one if it was good. Play each game and make each move on its own merits."
A number of books are available to help you sharpen your negotiation skills. We list four here for your consideration. Check for these or others at your library, bookstore or check "Books" on the Internet.
The Art of Negotiating, by Gerard I. Nierenberg
Getting To Yes: Negotiating Agreements Without Giving In, by Roger Fisher, William Ury and Bruce Patton
The Complete Negotiator, also by Gerard I. Nierenberg
The Anatomy of Persuasion, by Norbert Aubuchon