5 Ways You May Be Sabotaging Contract Negotiations with Enterprise Orgs
Contract negotiation tips rarely cut it when you’re negotiating a contract with an enterprise organization. Largely because negotiating with large businesses comes with its own set of rules.
Trouble is, if you do it wrong, you can sabotage your efforts. So you need to know the rules.
In this article, we cover contract negotiation tips that are exclusively for small businesses trying to contract with enterprise orgs. Keep reading to learn five negotiation mistakes you need to avoid, plus tips for closing your deal successfully.
Enterprise Negotiations Really Are Different
It can be challenging for small businesses to navigate enterprise contracts, especially since:
- An enterprise contract can run 50, 80, 100 pages, or more.
- Throughout negotiations, you’ll engage with multiple departments and even third parties.
- Enterprise orgs are often prejudiced against small businesses, believing they don’t have the bandwidth or experience to operate at scale.
That said, you can successfully contract with enterprise companies if you’re professional, transparent, and trustworthy throughout the process.
Let’s look at the most common negotiation mistakes SMBs make when taking on enterprise clients.
5 Mistakes that Sabotage Contract Negotiations
How you handle contract negotiations can make or break your deal. Let’s look at five ways you may be inadvertently sabotaging big deals.
Mistake #1. Misunderstanding redlining etiquette
Redlines are the edits you and the other party make to a contract as you negotiate terms. It’s a normal part of the negotiation process, but it has unwritten rules. There’s etiquette you need to follow if you’re going to win at the negotiation table.
Redlining is typically done in a Microsoft Word document with the track-changes tool. Each party edits the contract with their desired changes. The other party accepts or rejects these changes, and then makes their own proposed edits.
A big mistake small businesses can fall into is redlining without track changes. This makes it look like you’re trying to sneak a change in without allowing the other party to see it. It erodes trust and can even kill the deal.
Here’s a quick overview of good redlining etiquette…
In the Word doc, make your edits in the body of the text. Then leave a comment explaining why you made the change. You want to explain clearly why the change is necessary.
Don’t worry about whether your change is written in perfect legalese. If the other party accepts the spirit of the change, their lawyers will fix the language. The idea is to clearly spell out the change you’d like, and why, so they understand your goals.
When redlining, don’t go overboard. You don’t need to negotiate every little detail or make insignificant changes. Pick your battles, and focus on the terms that add risk to or cost your business more than you can afford.
Redlining on an enterprise contract can take time, so be patient. Each party will redline, submit their changes to the other party, and wait for a response. With each pass, you get closer to the finish line.
In this process, some changes will be accepted. Some rejected. And for some, you’ll negotiate a compromise. That’s part of the back-and-forth.
Keep it positive and professional. If there’s something you don’t agree with, don’t get defensive or go on the offensive. Contracts are about relationships, and all relationships are about trust.
Mistake #2. Overestimating your bargaining power
Few things are more annoying to an enterprise business than a small business trying to negotiate a contract like they're a Fortune 50. And there's no faster or more satisfying way for them to put an SMB in its place than to kill the deal.
You’re not fooling anyone. Both you and the other party know you’re at a disadvantage. There’s no need to pound your chest or talk as if you’re a bigger deal than you are.
That said, you do have an advocate. Your sponsor within the enterprise org wants what you’re selling. They can answer questions, help you understand terms, and support you within the organization.
Mistake #3. Not sounding knowledgeable and trustworthy
Enterprise companies are often anxious about working with small businesses. They're not sure how reliable you’ll be, or whether your work will meet their standards.
To build their confidence, make sure you know what you're talking about during negotiations.
When you ask for terms to be added or removed from the contract, offer a valid reason. If you don’t, it seems like you don’t know what you’re doing. Likewise, if the enterprise company asks for something that you don’t understand, seek guidance or advice before replying.
And don’t ask for things just to see if you can get them. They’ll see you as unprofessional, untrustworthy, or both.
And that could easily end negotiations. Even if you remain at the negotiating table, you may have lost any negotiating power you would have otherwise had.
Mistake #4. Making negotiations cost more than they're worth.
Another fatal error that small businesses make when negotiating with larger companies is making too many changes or taking strong positions on noncommercial terms.
When that happens, the margin of profit on your contract — particularly if it’s a low threshold contract — is eaten up in the cost of the negotiations. The enterprise client may choose to walk away rather than spend its time and resources negotiating unimportant clauses.
Too many redlines in a contract are often referred to as a “bloodbath” for two reasons:
- Because there’s red all over the pages
- Because of the number of deals it kills
Always remember, negotiation costs should be reasonable. The goal for both parties is to execute the contract as quickly as possible. So only push back where you need to.
Mistake #5. Not negotiating at all
Approximately 40% of small businesses sign contracts without giving them a thorough review, either skimming them quickly or signing without looking at the terms.
Many small businesses think that accepting the contract terms as-is shows good faith and generates goodwill.
But in reality, it can do the opposite.
Enterprise contracts are intentionally drafted to heavily favor the company’s interests. They actually expect you to push back on terms and negotiate. When you don’t, you signal that you’re inexperienced and don’t understand business.
It can also add unnecessary risk to your business.
Let’s say you’re negotiating a $20,000 contract. You want to be easy to work with, and you’re in a hurry to close, so you can start delivering results. After all, landing an enterprise contract gives you the leverage you need to snag more large clients.
So, you sign, not realizing that the contract requires you to carry several new insurance policies that cost thousands of dollars every year. That contract may be immediately underwater.
By signing without negotiating terms, you’re likely taking on unnecessary liabilities — costing you money and potentially bankrupting you. It may also be a red flag to your potential enterprise customer.
Fortunately, this can all be avoided by thoroughly reviewing the contract and negotiating better terms.
How to Negotiate Contracts Like a Pro
Negotiating with enterprise businesses isn’t rocket science. You can easily avoid the five deal-killers we outlined above by keeping three contract negotiation tips in mind:
- Know the benchmark for terms that impact your business
- Only redline what’s necessary
- Be prepared to compromise or walk away
Solution 1: Know your benchmarks
Both parties are trying to negotiate the best deal possible. Yes, you can push back on their terms, but don’t ask for the impossible.
No enterprise client is going to carry more risk than necessary. So you need to understand the benchmarks, the terms most businesses accept in an enterprise contract. Most enterprise customers are prepared to accept benchmark market terms — you just have to know what to ask for.
Solution 2: Only redline what’s absolutely necessary
Focus on the terms that add risk to your business or impact your profits. These are terms worth fighting for. They’re also the terms the other party expects you to push back on, so you should have no trouble having your redlines accepted.
Solution 3: Be prepared to compromise or walk away
Never forget that you’re not just signing a contract. You’re forging a relationship with your enterprise client. You need to build mutual trust by being willing to negotiate and compromise where necessary.
That said, you don’t have to accept every term. And you can walk away if you’re uncomfortable with the terms of your agreement.
Ultimately, negotiating enterprise contracts is about managing risks. You need to know what the benchmarks are. You need to know how much risk you’re willing to accept. And you need to know where your limits are.
The Bottom Line
Enterprise clients are a small business’s dream, opening the door to bigger revenue, new opportunities, name recognition, and a seat at a bigger table. But you need to know how to play the game.
That’s where Delino can help.
Delino is a smart contract review solution that helps you seal better deals. It reviews your contract, identifies terms that add risk to your business, and gives you appropriate language for redlining the contract. It also tells you where the benchmark is, so you know where you need to compromise and where to continue negotiating.
With Delino, you can breathe easier. It’s your secret weapon for managing risks in your business — and negotiating like a pro.
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.