Depending on your Customer Success team structure, Customer Success Managers might be tasked with negotiating contracts for the relationships they own. The circumstances that spur contract negotiations can be positive, such as a successful upsell that unlocks additional licenses or custom features. Or, the situation might be less than ideal; perhaps the customer feels that they are not getting the full value out of the product and are threatening to cancel unless their licensing fee is lowered. Whatever the case may be, certain aspects of the traditional negotiation dynamic shift when you’re in talks with an existing customer. The goal of this post is to prepare Customer Success teams for negotiating with customers and to improve (or at least maintain) their customer relationships in the process.
Do your homework
The first step to a successful negotiation is to prepare for the conversation ahead of time. Customer Success teams are usually a step removed from the initial sales process, which means that without a solid Sales to Customer Success knowledge transfer, they are not always privy to established rate cards and standard contract terms. Additionally, depending on the terms of the current contract you’re renegotiating, you might need input from the Product or Operations teams to determine appropriate pricing for custom features. For that reason, it would be silly to go into a discussion without doing a fair amount of preparation in the days leading up to your conversation.
While compiling information for your contract discussion you should take the time to gather data on the partner’s usage and engagement with your product. It is preferable that this data be quantitative (include revenue figures if applicable), but it can also be qualitative, such as testimonials from users. I often find it beneficial to share this data with the customer ahead of time. This allows you to set the tone of the conversation and to focus on the value of your company’s product and services and tie this value into your value based pricing model. However, you should not have to sell the customer on your product. Perhaps you’re chatting with someone who you do not interact with on a regular basis, like a finance person, but the product owner should be an evangelist broadcasting the value your partnership provides to their company.
Understand the other party’s interests
Negotiations should revolve around you asking questions to better understand the other party’s goals, objectives, and pain points. You should also focus on interests versus positions. A position is something a party has decided upon ahead of time, but it was their interests that caused them to come to this position. Which is to say that you should have a strong understanding of what motivates the other side, not just what they’re asking for upfront. Ideally, once both parties have identified their interests they would share and discuss them with each other. Defining a problem in terms of positions means that at least one of the parties will “lose”, while collaborating on an agreement that is beneficial to both parties presents a Win-Win option.
I am a big fan of the Win-Win negotiation strategy. This HBS article argues that collaboration is the primary style you should use for most goals in B2B negotiations. Negotiators focused on collaboration between the two parties are adamant that their needs must be met while acknowledging that the other party also has needs. I have found that the more participants are co-oped in the negotiation process, the more likely they are to be involved and support the outcome.
You should seek to trade unequally valued items to your advantage. Perhaps you do not put a huge price on in-person training sessions while the other side sees this as a huge advantage. Offering concessions on things that mean little to you presents opportunities to get closer to your goals. Finally, if the last offer on the table is yours, always insist on a counteroffer to force the other party to move their position before you make another offer.
Aim to maintain (and improve!) your relationship
It should go without saying that a key component of a successful negotiation is for both sides to feel like they’ve come out ahead. Since you already work with this customer, you have one of the first hurdles in negotiations out of the way- establishing trust and reliability. Remember that you want to remain transparent and constructive, even if things get tense.
Additional research – principled negotiations
If you’re really interested in negotiation theories there are a lot of great books and resources to consult. I think the “principled negotiation” framework Fisher and Ury present in their book Getting to Yes is a great starting point. Here is a quick review of Getting to Yes, below is my own quick summary.
1) Separate the people from the problem
This allows you to address the issues at hand without damaging the relationship. Before you start negotiating with customers, start make sure to address any charged emotions and try to uncover their source. Try to see the other party’s side of things and aim to be empathetic.
2) Focus on interests rather than positions
Your position is something you have decided upon, but it was your interests that caused you to come to this position. Defining a problem in terms of positions means that at least one of the parties will “lose”. Once the parties have identified their interests they should share and discuss them.
3) Generate a variety of options before settling on an agreement
Take time to brainstorm possible solutions to produce a myriad of options before zeroing in on one agreement. Trading unequally valued items is a great way to “expand the pie” to reach an agreement that meets both parties’ goals.
4) Insist that the agreement be based on objective criteria
Try to find measurable standards upon which to base your agreement. Criteria should be both legitimate and practical with scientific findings, professional standards, or legal precedent being the most likely sources of objective criteria.