10 Contract Negotiation Tips for Better Deals, Lower Risk
Businesses are built on contracts — and success depends on your ability to negotiate good deals.
How do you hammer out a good deal? Keep reading to learn 10 contract negotiation tips for better deals and lower risk.
The Truth About Contract Negotiation
Too often, an agreement is delivered for signature without leaving room for negotiations. But business deals aren’t like internet agreements. You aren’t expected to sign on the dotted line without negotiations.
That’s because contracts spell out the terms of your agreement and what the consequences will be if those terms aren’t met. It’s vital that both parties agree.
Contract negotiation is the process of ironing out the details of a contract to reach a legally binding agreement that sets the terms for the relationship.
10 Contract Negotiation Tips
The goal in contract negotiations is a win-win, with both parties feeling satisfied with the terms and neither carrying all the risk. But few contracts are written in a balanced way. So let’s look at 10 tips for mastering and winning contract negotiations.
1. Know what you're trying to achieve
Before beginning contract negotiations, you need to know what the goal is and how far you’re willing to compromise to close the deal. As you negotiate terms, weigh the benefits and risks you’ll face if you agree to those terms.
Decide in advance the bottom-line terms you’re comfortable with. Think of these as guardrails that keep you from accepting unnecessary risks.
2. Read every word
According to Delino’s Risk vs. Growth survey of how small businesses perceive and manage risk, Only 44% of small businesses review contracts thoroughly before signing. 10% sign it without so much as skimming it.
Here’s why that’s a problem: Contract lawyers tend to muddy the waters in contracts, writing terms to look like they’re beneficial to you while making them difficult to enforce. Unless you carefully read the terms, you won’t catch the legalese that puts your business at risk.
3. Above all, protect your business
Too often, to seal the deal quickly, a small business will sign a contract that isn’t beneficial. That’s a mistake. Every contract you sign adds risk to your business.
Remember, one bad contract may not seem like a lot of risk. But multiplied across ten or more contracts, you may be carrying more risk than is wise.
4. Ask for reciprocity
When the other party asks for changes to the contract, remember, you aren’t obligated to accept them. If a term is important to you, say so.
If the counterparty insists on the change, ask for reciprocity.
One way to do that is to ask the other party to retain the term with mutuality, meaning it applies to both parties, not just one. Another is to offer to make the change in this term but ask for concession in another term.
5. Understand Redlining
Redlining is the process of marking up a contract as the parties are negotiating terms. Rather than trying to email or message one another, the contract is marked up with Microsoft Word’s track changes feature.
Never sign a contract without reviewing and redlining it first. If the counterparty sends you a PDF for signature, ask them for a Word doc instead. Then redline any terms that
- Don't work for you
- Raise your risk levels
- Aren't necessary
6. Give yourself wiggle room
The counterparty is going to ask you to soften your demands. So ask for more than you need. Give yourself some wiggle room, so you can lower your demands and still meet your bottom-line needs from the deal.
If the counterparty doesn’t ask you to change the term, you’ll get more than you need. And if they ask you to lower your demands, you can revert to your real position while still leaving the counterparty feeling like they won.
7. Take emotions out of the equation
It’s important to separate relationships from the issues. Pay attention to what the other party needs or wants and who may be influencing their decisions. If you feel negotiations are at a stalemate, try to find a solution that works for both parties. If you feel you’re making all the concessions, reread number 4 above.
Throughout negotiations, try to be objective and fair. Logic, not emotions, wins the day.
8. “In the spirit of partnership”
If you want to ask for a big change, soften the request by using the phrase, “in the spirit of partnership.” This communicates that you’re trying to be fair despite the big ask.
For instance, when negotiating with a contractor, and their rate seems high, leave a comment saying, “In the spirit of partnership, can you lower your rate?” They may push back, but at least you asked.
9. Stay positive
Remember, you need to be able to work with the counterparty after the contract is signed. So stay positive, no matter how difficult negotiations may seem. Look for points of agreement. Encourage one another. And maintain a collaborative energy.
If you feel discouraged or frustrated, take a walk. Don’t take it out on the other person.
10. Be willing to walk away
Finally, no matter how important the deal may seem, if you can’t negotiate fair terms, you may need to walk away. No deal is often better than a bad deal.
Don’t make threats. Don’t respond in anger. This doesn’t have to be an emotional decision. (See point 7 above.) It only needs to be the right decision.
If the other party won’t compromise, is asking for unfair and unreasonable terms, or is eroding trust before you close the deal, they’ll likely continue that behavior after you execute the agreement. So walk away. In the long run, you may be glad you did.
It Starts with Careful Contract Review
To get the most from these contract negotiation tips, you need to be able to understand and respond to confusing legalese or hardball redlining tactics. Some businesses hire an attorney to help with contract review, but 84% of small businesses don’t have access to legal representation.
For them, Delino can fill the gap. Delino is a smart contract review software designed specifically for small businesses. It levels the playing field by providing intelligent contract review, redlining suggestions, and risk evaluation. So you have the insights you need to balance risks and opportunities.
Get the insights you need to win contract negotiations. Because the only way to accelerate growth is to manage your risks.
DISCLAIMER: Delino is not a lawyer and makes no warranties that its advice will protect your business from lawsuits or damages. Users rely on contract feedback at their own risk. Please consult your attorney for legal advice.