Sales Negotiating: How to Approach Contract Changes & Price Increases
Attracting new clients and negotiating deals in today's economy can be challenging. And on top of that, you might be asked to renegotiate existing contracts or propose fee increases to keep up with market conditions and company profitability requirements. Here are some tips and strategies to navigate these negotiations.
In this article, we will cover the following:
- When to Ask to Renegotiate
- 5 Questions to Ask Yourself Before Negotiating
- 6 Steps to Renegotiate a Contract Change or Price Increase
- 3 Most Common Renegotiation Objections and How to Address Them
Let's dive in.
When to Ask to Renegotiate
Renegotiating a contract change or price increase can be a delicate process that requires careful consideration of timing. Knowing when to ask for a renegotiation can significantly impact the success of the negotiation.
Here are six key considerations for determining when to ask to renegotiate:
1. Changes in Market Conditions
If there are significant changes in market conditions that affect the contract terms or the price of the product or service being offered, it may be appropriate to ask for a renegotiation.
For example, if there is a sudden increase in the cost of raw materials, transportation, or labor that impacts the profitability of the contract, it may be necessary to renegotiate to ensure a fair and mutually beneficial agreement.
2. Contract Milestones or Expiration
Contract milestones or expiration dates can also be opportune times to request a renegotiation.
For instance, if a contract is about to expire or a significant milestone has been achieved, it may be appropriate to revisit the contract terms and negotiate changes based on the new circumstances or outcomes achieved.
3. Performance Metrics
If there are changes in performance metrics, either on the client’s side or the supplier's side, that impact the value or quality of the product or service being delivered, it may be appropriate to request a renegotiation.
For example, if the client’s requirements have changed or the supplier is not meeting the agreed-upon performance standards, it may be necessary to renegotiate to align expectations and ensure a successful outcome.
4. Relationship Dynamics
Relationship dynamics can also play a role in determining when to ask for a renegotiation.
If the client-supplier relationship has evolved significantly since the contract was signed, and there are changes in the dynamics of expectations, it may be appropriate to initiate a renegotiation to ensure that the relationship remains mutually beneficial and aligned.
5. Legal or Regulatory Changes
Changes in legal or regulatory requirements can also impact the terms of a contract and may warrant a renegotiation.
For example, if there are changes in industry regulations, tax laws, or other legal requirements that affect the contract's validity or enforceability, it may be necessary to renegotiate to ensure compliance and mitigate risks.
6. Changes in Business Model or Pricing Strategy
Often, contracts may need to be renegotiated because the business is evolving its underlying business model and how it offers solutions to its clients. An example of this change is when a company is moving to more of a subscription or Software-as-a-Service model from a more traditional fixed fee or project-based approach. This takes careful planning, consideration, and analysis to determine how to make this a win for the client without alienating them or impacting existing revenue streams.
5 Questions to Ask Yourself Before Negotiating
Before your next negotiation, ask yourself the questions below to determine whether you are ready to negotiate and highlight areas where you may have more work. Answering “yes” to all the questions below will increase your chance of success in your next negotiation.
#1 Selling Value
- Identified and quantified the value of my solution in terms of the customer’s priorities?
- Identified all the stakeholders involved in this decision and do I understand what they care about?
- Determined how Procurement will be involved in the negotiation and reviewed their specific requirements?
- Developed multiple coaches in the account who can help provide information and insights?
- Presented the value of my solution before engaging in any negotiation discussions?
#2 Setting the Stage
- Researched the people I am negotiating with and became familiar with their backgrounds and interests?
- Considered the predominant negotiation styles of the people I am negotiating with and am I prepared to respond accordingly?
- Inventoried my sources of power in the negotiation and investigated where the client may have limitations on their power?
- Worked to develop a common shared interest with the client that I can use to refocus the negotiations if they get difficult?
#3 Positions and Interests
- Clarified all the positions my client has taken?
- Asked questions to uncover the interests and motivations behind the positions?
- Planned to negotiate on interests instead of positions?
#4 Issues, Options, and Values
- Attempted to identify and clarify all the current negotiable issues?
- Brainstormed multiple options to address each issue?
- Determined a value for each option in terms of the importance and tangible cost of presenting that option?
#5 Trading and Sequencing
- Developed a comprehensive trading plan that details what I will offer and what I will ask for?
- Established best and worst case I will accept for each negotiable issue?
- Prepared to use diminishing offers with each trade?
- Determined my walk away position?
- Investigated my best alternative to a negotiated agreement (BATNA) and investigated the BATNA of my customer?
- Prepared to always trade instead of concede in the negotiation?
- Reviewed sales negotiation tactics the client may use and prepared myself to respond with the appropriate countermeasure?
Once you can answer the questions above with an enthusiastic “yes,” you can enter into a productive negotiation.
6 Steps to Renegotiate a Contract Change or Price Increase
When renegotiating a contract or requesting a price increase, having a pre-defined process highlighting the required skills can go a long way to helping sales professionals overcome this hurdle.
By understanding when to ask, how to connect value, confirm priorities, explain the solution, solve concerns, and seek agreement, sales professionals can approach the renegotiation process strategically and achieve a win-win outcome for both parties. Let's dive into the steps below.
Here are six steps to follow when preparing to negotiate a contract. You can remember these stages by the simple acronym ACCESS:
Step 1 - Assess the Account
The first step to renegotiating an existing contract or increasing prices is to review the existing agreement. It includes understanding the terms and conditions, payment terms, and other relevant details. It is essential to clearly understand what is currently in place to identify areas where there may be room for improvement.
During the review process, it is also essential to identify any issues or concerns the client may have had with the current contract to identify potential areas for improvement in the renegotiated agreement.
Step 2 - Connect Value
Once you have reviewed the existing agreement, it is time to recap the value your organization has provided to the client since the start of the contract. It is an opportunity to highlight the successes and milestones that have been achieved, as well as any additional value that has been provided.
It is essential to remind the client of the current utilization of your product and the benefits they have received, as this can help to build a positive relationship and lay the groundwork for future negotiations.
Step 3 - Confirm Priorities
Next, it is essential to identify and confirm the client's priorities for using your product or solution in the future. It includes understanding their business objectives, challenges, and pain points. Remember to take the time to listen to the client and understand their needs to inform the renegotiated agreement.
Ask questions and be curious to understand potential roadblocks or objections the client may have. By understanding these concerns, and the interests behind their positions, the sales professional can better anticipate and address them in the renegotiation process.
Step 4 - Explain the Solution
With a clear understanding of the client's priorities, it is time to present additional value and a revised proposal/contract. It may include new services or offerings that can address clients' pain points or creative options to help them achieve their business objectives.
It is essential to present the revised proposal in a way that highlights the additional value the client will receive from the new agreement. Offering additional enhancements and no-cost add-ons helps demonstrate your commitment to the client relationship and build buy-in from the client.
Step 5 - Solve Concerns
During the renegotiation process, it is essential to anticipate, clarify, and respond to any objections the client may have. It includes addressing any concerns or potential roadblocks identified in the previous step.
When responding to objections, the sales professional should first acknowledge and listen carefully to the client's concerns, ask questions to clarify the underlying issue, and then address them thoughtfully and empathetically. It can help to build trust and strengthen the relationship between your organization and the client.
Step 6 - Seek agreement
Once all objections have been addressed, it is time to seek agreement and confirm the next steps. It includes finalizing the revised proposal and agreeing on the terms and price of the renegotiated contract.
At the end of the discussion, the sales professional must ask for commitment and confirm the next steps. It helps ensure both parties are clear on their responsibilities and avoid misunderstandings or miscommunications.
3 Most Common Renegotiation Objections and How to Address Them
When negotiating a contract change or price increase, objections from clients are expected.
As a sales professional, you must be prepared to address these objections confidently and professionally.
Here are the three most common renegotiation objections you may encounter, along with strategies on how to effectively address them:
Objection #1: "It Is Too Expensive"
This is a common objection in contract change or price increase negotiations. Clients may push back on proposed changes due to cost or budget constraints concerns.
How to Address It: Firstly, acknowledge the client's concern and empathize with their perspective. Then, reiterate the value and benefits of the proposed changes, emphasizing how they align with the client's business objectives or solve their pain points. Lastly, highlight the potential long-term benefits of the proposed changes and how they outweigh the short-term costs.
Objection #2: "We Don't Have the Budget"
Clients may claim they don't have the budget to accommodate the proposed contract change or price increase, even if they see value in it.
How to Address It: Begin by understanding the client's budget constraints and probing for more information. Ask questions to uncover their budget limitations and explore potential solutions. If feasible, offer additional value or added benefits to compensate for the budget constraints.
Objection #3: "We Are Not Interested in Changes"
Some clients may resist changes to the existing contract or price, favoring the current status quo.
How to Address It: Acknowledge the client's preference for the current arrangement and express understanding of their concerns. Then, reiterate the reasons for proposing the changes and how they can benefit the client's business. Finally, explore options for a trial period or pilot program to test the proposed changes on a smaller scale to build trust and confidence.
By carefully considering when to ask for a renegotiation and being well-prepared with a clear strategy, you can increase your chances of success in any negotiation.
Remember the key considerations for determining when to renegotiate, such as changes in market conditions, contract milestones or expiration, performance metrics, relationship dynamics, legal or regulatory changes, and changes in your business model or pricing strategy.
Before entering a negotiation, ask yourself the essential questions about selling value, setting the stage, understanding positions and interests, identifying issues, options, and values, and trading and sequencing. By answering "yes" to these questions, you will be well-prepared to engage in a productive negotiation.
When renegotiating a contract change or price increase, follow the six steps: assess the account, connect value, confirm priorities, explain the solution, solve concerns, and seek agreement. This structured approach will help you navigate the negotiation process effectively and achieve a win-win outcome.
Furthermore, anticipate and address the three most common renegotiation objections: "It is too expensive," "We don't have the budget," and "We are not interested in changes." By responding confidently and professionally, while reiterating the value and benefits of the proposed changes, you can overcome objections and maintain a positive rapport with your clients.
About Ray Makela
Ray Makela is the General Manager of the Sales Readiness Group, A Part of SBI. He oversees all client engagements as well as serves as a senior facilitator on sales management, coaching, negotiation, and sales training workshops. Ray has over 20 years of management, consulting, and sales experience and writes frequently on best practices for coaching and developing sales teams.
- Connect with Ray Makela