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Working as an Independent Contractor: Effective Contract Negotiations
Contract negotiation requires skill and preparation
An increasing number of men and women are looking to self-employment as a path toward success in business. High unemployment and a lack of available jobs has made “going it alone” an appealing alternative to traditional employment. An important distinction between self-employment and working for someone else is that as an Independent Contractor, you will sell a product or service instead of your time and labor. To do this effectively, it is important to develop effective contract negotiation skills.
A key to your success as an Independent Contractor will be your ability to negotiate for jobs or assignments in ways that benefit you. To accomplish this you must offer something your clients need in return. Former Boston Celtics coach and general manager Red Auerbach was renowned for giving other NBA teams what they wanted while getting the ideal players for his team. Microsoft founder Bill Gates created the largest personal fortune in the world with a shrewd ability to negotiate. A foundation for successful negotiations can be seen in their actions and summarized in three precepts:
1. Determine what your client truly needs. If you’re selling teddy bears to a toy store with twenty distributors for this product, you’re not meeting their needs. If only you can acquire that teddy bear or you sell it at cheaper prices or with a faster delivery, your chances of successfully negotiating will dramatically improve.
2. Place yourself in a position to solve your client’s problems. If you supply only 20% of the teddy bears the toy store needs, you might sell them some bears but you will not be their supplier of choice. If you can fulfill their needs completely, you will be much more attractive to work with.
3. Recognize the value of the product or service you’re providing. How crucial are teddy bear’s to that store’s business? If the store has advertised the sale of teddy bears and you are the only supplier, your product is essential to the toy store’s success and reputation. If your teddy bear is one among fifty other stuffed animals they sell, the value of your product is diminished, even if it is totally unique.
Teddy bears notwithstanding, when you fully understand these three points, you are prepared to negotiate with customers for your services.
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The art of negotiation
Contract negotiation strategies
Contracts and agreements take many forms, based upon circumstances and details. If you are working with individuals, your contract will usually be a simple one; often it involves nothing more than a customer agreeing to pay the price you’re charging for your services. If you are partnering with small businesses or corporations, negotiations can become more involved. Most agreements can be summarized in these simple terms: you want the best price you can negotiate for your services; conversely, your customers want the best value for their money. Since clients are not apt to tell you what the highest price they are willing to pay for your services might be, it is important to have a clear understanding of what you are seeking from a contract in order to reach an accord. When this is accomplished, your ability to negotiate agreements will inherently improve. To simplify this process, the following eight steps are recommended before and during the contract negotiation process.
1. Study your client. Learn what their reputation is built on. When you understand what they value, you will see their true needs and can ensure your products and services support their ideals. If your customer prides themselves on exceptional value, you must offer it. If fast service is important to them, you must provide this. What does your client absolutely need? What do they most want from bargaining with you? What is non-negotiable and what will they settle for in compromise? You may never know what your clients really want before talks begin, but try to figure it out. Answers to these questions will allow you to negotiate from a position of strength.
2. Examine your own needs in the same manner you analyzed your client’s situation. What are your ultimate goals in negotiating this contract? What will you gain by entering into an agreement with the other party, and what will you lose by failing to agree on a contract? How much are you prepared to sacrifice to come to an agreement? What is not negotiable for you? Make a list of compromises you are willing to make to secure a contract with the other party. These will become the negotiating tools you will use to gain concessions from your clients. List them in order of importance so the concessions you make first are least important to you.
3. Take the initiative toward creating a contract. It will be to your advantage if a preliminary contract comes from you instead of from your client. You will then be able to shift the emphasis of the contract and its details in your favor. If this doesn’t sound ethical, be assured that the other party will create a contract in exactly this manner if given the opportunity. The negotiation process itself is where agreements are made, and this involves some give and take. Place yourself in a position where everything you want is on the table, and the negotiation process involves the other party bargaining to include what they want. This will provide an early assist in creating a contract to your liking.
4. Suggest your office or a place you are comfortable with to negotiate (but don’t insist). “Turf” is such an obvious edge in negotiating that its importance can be exaggerated. The site of negotiations can even be a bargaining chip that will help you later. If you give in on this mostly irrelevant point you may be seen as willing to compromise, which may draw early concessions from the other party. If you agree to their location, have anything you might remotely need with you and come prepared to spend a large block of time in their offices.
5. Negotiate from a position of strength. The other party needs something you have or they wouldn’t be bargaining with you. Don’t assume you need them more than they need you, for just the opposite might be true. You will need to make concessions in order to reach an agreement, but never make an accommodation without being granted one in return. Use your list of acceptable concessions in a way that keeps the negotiations progressing, but realize that the person you’re bargaining with will do the same thing—the process will subsequently become more difficult as you go.
Be prepared to seize any advantage or concession offered to you unexpectedly. The person you are dealing with may not realize the importance of what you’re bargaining for and you may get more than you hoped. It is not necessary to tell the other party that they have given you more than you ever expected to get.
6. Act in a professional manner at all times. You will not help yourself by being overly informal, friendly or nonchalant. Bargaining can be stressful, so take some advice from “The Godfather” and remember: “it’s nothing personal—just business.” Business can seem quite personal at times, however, so don’t succumb to emotional responses. It may be a strategy of the other party to push you into an emotional state where you will be less rational, so remain focused on your objectives.
7. Resist psychological ploys. The other party might be attempting to make you uncomfortable, hungry, angry or tired, but you must resist the temptation to give in just to get the process over with. Remind yourself of what you decided in the beginning must be present in an acceptable contract and do not waver from these points. Never hurry to finish the bargaining session and don’t let efforts to distract you push you into making a bad deal.
8. Strive for a win-win scenario. Negotiation is about cooperation. Your objective is to reach an agreement with a potential customer, not defeat them in battle. If you are so ruthless the other parties felt they had to make a bad deal, they will never sit down with you again. Use your agreements to form genuine partnerships that last beyond the length of your contract. Your efforts can lay the groundwork for future business, and the next negotiating session will be easier because the other party will know you’re willing to support a fair deal.
Negotiation skills are life skills
Anyone who is self-employed must master contract negotiation strategies if they wish to succeed as entrepreneurs. Bad luck won’t kill your business nearly as fast as bad contracts will. You might think “wheeler-dealers” are born and not made, but this is not true. The good news is: negotiating is something that can be learned and improved upon to help you in countless ways—negotiating skills are life skills. If you are logical, reasonable, persistent and patient, you have the qualities you need to bargain with others successfully.
I wish you good fortune in all your business dealings.
This article represents only an overview for mastering the nuances of successful negotiation. It is not intended as legal advice. For more information, there are many excellent books available that will help you improve your negotiating skills.
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