Compromise

If a negotiation has gotten to the point where neither side is willing to make a deal, it may be time to compromise. The goal of compromise is not for one party to concede to the other party's demands, but to work out equitable concessions that make it possible for an agreement to be reached.

Often, negotiations will have a time frame that limits how long they can continue, such as needing to close a sale before the end of a sales quarter, needing to buy a car so that you can drive to work the next day, or needing to rent an apartment so that you have somewhere to live. If you find yourself in a situation where you cannot get a deal done within a reasonable timeframe without giving up something you wanted, then it may be necessary to do what it takes to close the deal.

For example, if a customer refuses to sign a deal unless they get an additional 2% off the listed price, but it's the last day of the sales quarter, then it may be worth simply conceding the 2% to make a sale. However, you should always try to get something in exchange to make the deal equitable, because after all - you did just give them 2% off, and it would only be fair for them to give you something in return. You might propose, "We can give you the 2% off, but we need to cap the amount of customer support we provide - how does that sound?" If the customer rejects that compromise, you might say, "OK, we can do 2%, but you will have to handle the installation yourself. Do we have a deal?"

The goal of compromise in negotiation is to try to find some equitable trade in value so that one party does not feel taken advantage of by the other, and that both parties are still happy with what they got even though it may be less than they originally wanted. If it is not possible to find equitable concessions, then it may be necessary to give up something you wanted simply to save time and get the deal done quickly. Strategically, this can make a lot of sense when we consider two core business principles: the Time Value of Money and Customer Lifetime Value.

The Time Value of Money - or TVM - is a financial concept whereby money is worth more now than it is in the future. For example, if you get $1000 today, it is worth more than getting $1000 a year from now, as over the next 12 months that money could be invested, or used to buy goods and services that you want now.

As we think of compromising in negotiation, we should consider the Time Value of Money, as it may be best to get less of what we want now, rather than wait to maybe get more of what we wanted later. This concept is captured in the saying, "A bird in the hand is worth two in the bush," which speaks to scenarios where it is better to seize an opportunity now, rather than wait and hope you might get something better in the future.

Customer Lifetime Value - or CLV - is a metric that represents the total amount of money a customer is expected to spend with a company over the long term. For example, if you have a customer who likes doing business with your company, their first sale might be for $100, but next year it might be $200, and the year after it might be $300. If we were to assume that this customer spends around $100 a year more with the company every year, at the end of the first year you only made $100, but at the end of the second you made $300, and at the end of the third you made $600. If we then project this out to 10 years, then we would say that the customer lifetime value of this customer would be $5,500 over a 10-year time period.

Now imagine that in the first year, rather than getting $100, we got them to agree to a really poor deal, where they ended up paying $500 for something that they knew was only worth $100. You might have gotten $400 over the original price, but because of how you treated that customer, they would most likely take their future business elsewhere. As a result, instead of the $5,500 that you would have gotten over the next 10 years, that $500 is all you would ever get.

Therefore, as we think about making a compromise, we should not only think about the value of getting some money now, but also think about how much money we might also get in the future. From a strategic standpoint, we can think of this as losing a battle but winning the war. If we had to make concessions today to get the deal closed quickly, we might think of that as losing a battle, but if getting that money today was critical, and if the customer would be worth more in the future, then compromising on something in the short term might be the best long-term move.

Let's imagine you were a car mechanic who had just fixed a customer's engine, with the cost of parts and labor being $750. When the time comes to pay the bill, the customer argues that the engine didn't actually need fixing - even though it was dragging on the ground when they drove it in - and they refuse to pay a penny over $500. If - despite your best efforts to bargain them to a reasonable middle ground - they still won't come up from the $500, you might consider the Time Value of Money - in that it's better to get $500 now rather than have to take them to court for the remaining $250, but you also might consider their Customer Lifetime Value and say, "OK, you drive a hard bargain. I'll tell you what, I'll take the $500, and the next time you need a repair, consider bringing it back here since I already know your car, and if you have any friends who also need their car repaired, please pass on my information."

Of course, if the customer does come back in the future, you'll know better than to trust they will pay their bill, and will either shoot for much higher than the actual cost, or make sure you get the money up front. The real victory, however, might be the customer bragging to their friends how they got one over on some poor mechanic, and that if they needed their car repaired, they should definitely take their car there too. At the end of the day, though you lost the battle for $250, with the influx of new business from new customers, your compromise might allow you to win the war.