By: Ray Makela on April 24th, 2023
Sales Negotiating: How to Approach Contract Changes & Price Increases
Attracting new clients and negotiating deals in today's economy can be tough. 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'll cover the following:
- When to Ask to Renegotiate
- 6 Steps to Renegotiate a Contract Change or Price Increase
- 3 Most Common Re-Negotiation Objections and How to Address Them
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’s 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 if 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.
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 you want to ask for the sale:
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's important to clearly understand what is currently in place to identify areas where there may be room for improvement.
During the review process, it's 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's time to recap the value your organization has provided to the client since the start of the contract. It’s an opportunity to highlight the successes and milestones that have been achieved, as well as any additional value that has been provided.
It's important to remind the client of the current utilization of your product and the benefits they’ve received, as this can help to build a positive relationship and lay the groundwork for future negotiations.
Step 3 - Confirm Priorities
Next, it's essential to identify and confirm the client's priorities for using your product or solution going forward. 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's 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's important 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's important 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's 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 needs to clearly ask for commitment and confirm the next steps. It helps ensure that both parties are clear on their responsibilities and avoid any misunderstandings or miscommunications.
3 Most Common Re-Negotiation Objections and How to Address Them
When negotiating a contract change or price increase, objections from clients are expected.
As a sales professional, you need to be prepared to address these objections confidently and professionally.
Here are the three most common re-negotiation objections you may encounter, along with strategies on how to effectively address them:
Objection #1: "It's 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 that 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're Not Interested in Changes"
Some clients may resist changes to the existing contract or price, citing a preference for 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.
Renegotiating a contract change or price increase requires sales professionals to demonstrate exceptional value-selling, negotiation, and client management skills.
While it can be challenging, proper preparation and a well though-out process can help you achieve a mutually beneficial outcome.
By taking the time to understand the client's priorities and concerns, presenting additional value, and responding to objections in a thoughtful and empathetic way, you can build a strong relationship with the client and lay the groundwork for future success.
About Ray Makela
Ray Makela is CEO and Managing Director at Sales Readiness Group (SRG). 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.