Leveraging Existing Customers in Contract Negotiations

Contract negotiations and re-negotiations can be risky business. Both parties go into it with the assumption of the potential for conflict. If you are the provider, you do have a secret weapon: your existing customers and their contracts.

These existing contracts give you precedent that you can use in the negotiations. This is especially true if you do business with a government entity. As my colleague Sandra Stenzel, founder of the Bid Resource Centers in Texas that became the model throughout the US has often said to clients, “the government wants the lowest responsive, responsible bid”. That translates in contract negotation to “we want the best deal” — unspoken is “than you give anyone else”.

In our case, our client was faced with a customer who wanted the same terms as the government got and not an increase in price from the last contract. Reasonable, but not in line with the contracts of their other clients. Our client’s goal was to provide parity with his other non-government contracts for the same work. Also reasonable and necessary for his growth in order to simplify his pricing structure which was definitely not standardized.

My colleague, Daniel Diener, assisted with the negotiations. He made the somewhat unusual suggestion to talk to the largest client about this contract problem. The result was to encourage our client to stand firm on the new price by leveraging the contract of the larger client. Our client said no, he could not cut the price for this client. The strategy worked. The contract was signed and the price was increased. It did no harm and he has continued to grow his business more than 10% a year because the pricing structure is stabilized now.

Frequently, a very large client wants a “discount” on the contract just for the prestige of working with them. They can also want to delay payments. But you can find yourself facing this in contact negotiations of any size.  As an owner, you need to decide if you are going to just “throw away” your price sheet or leverage your existing clients and their contracts.

Consumers can ask for it, too. In some countries “haggling” is part of the buying process. We see it most often in our clients who are part of the Groupon-type Daily Deals. Our clients tell us about coupon buyers who want to negotiate with them for more than they bought.

Contracts can work in your favor when someone wants a “discount”. Don’t feel you have to give in. Stand firm for your existing customers and leverage them and their agreements with your company . In the case of Daily Deals, you have negotiated a contact with an online coupon marketing company. Stick to the deal. Use that contact to help customers understand. Use your contract to reward customer loyalty of existing customers who now won’t feel that new customers get a better deal than they do.

Using your contract for leverage can also give real power to your employees. In Sarah Jacobson Purewal’s  Groupon Nightmares, writing for Entrepreneur, she cites the case of Sound Roots, a music school in Oregon. When numerous people called to try to bend the rules and get more than the value of the LivingSocial coupon they bought, owner Fara Heath, told her manager to say, “This is a very good deal, and take it for what it’s worth.”

The combination of “stand your ground” and leveraging  the input other valuable customers in your contract negotiations works.

If you need further ways to leverage your contracts, know what are your legal rights when it comes to different pricing for different clients. Be sure you are not violating the Robinson-Patman Act and engaging in pricing discrimination for commodities. As a manufacturer, the state of Texas provides a quick reference guide to legally pricing. Online marketers also need to be careful. This post on internet sales pricing on websites by Anita Ramasastry, an Associate Professor of Law at the University of Washington School of Law in Seattle and a Director of the Shidler Center for Law, Commerce & Technology can be helpful.  We do recommend that you check with your legal advisor for the most up to date information on the laws because contracts, and especially pricing regulations, change.