Value, Benefit, and Cost in Negotiations

In a K&R Negotiation Skills Training Workshop toward the end of last year, one of our clients brought in this formula…

Value = Benefit – Cost

Not perfect, but persuasive in many ways.  Let’s discuss a couple of critical pieces of it.

The first negotiating mistake we see related to this is that “value” is one of the most misused words in technology sales.  A maddeningly high percentage of the time, it is used by Sellers as a substitute for “price”.  An example: “This deal provides you with $250,000 worth of software value for only $167,000.”  This sort of presentation reminds me of the magazine subscription solicitations I get in the mail. “Photographing Travelling Automobiles, a $360 value, for only $14.95 for one year.”  I do not believe there is anyone left in the world who believes the $360 value statement.  It’s really a statement of newsstand price.  It is not in any way credible.  If you are a Seller, don’t ever make this mistake again.  Find out  the real business value that your offering provides to your Buyer, and describe it properly.  Remember that the more specific the description is to the Buyer, the more persuasive it will be.

The second negotiating mistake related to this formula is forgetting to quantify the benefit.  If we plug in $0 for the benefit, what do we get?

Value =  0 – Cost

It’s always a number below $0.  As a Seller, the only way to improve your position is to cut price, and hope that the Buyer has some value figure in their head that can offset the cost remaining.  This is a bad negotiation strategy, and leads to agreements that get closed when the Buyer gets around to it (because their intuition says the time is right).

If you’re happy with that as a seller, you have our permission to ignore the benefit part of the equation.  If you are not happy with this, contact us – we can improve your results.  (td)