There is a lot of power in making an opening offer. In fact, the opening offer anchors the entire price conversation. Do you want to set the anchor, or allow the other party to set the anchor?
You should make a conscience choice. By setting the anchor, you are determining the scope and range of the price conversation. If you are unprepared, you could set the price anchor too low or too high. Both of these circumstances are bad for business.
By allowing the other party to set the anchor, they are determining the scope and range for the price conversation. Their anchor could cost you. Professional negotiators intentionally set the anchor and drive a hard bargain. Are your prepared for that?
There is no hard and fast rule for deciding if or when to make the first offer. I’ve set the anchor and allowed others to set the anchor. Each decision was made based on the information I had at the time. If you do choose to make the first offer (i.e. submit a bid or proposal with a price), answer these three questions first.
- Do I know what the market will bear for the product or service? Times are very different than they were a couple of years ago. We’ve experienced a lot of price fluctuation, meaning perceived value has moved down and then back up again. If you don’t have a handle on this question, you may be in for a tough negotiation.
- Do I understand the costs produce this product or offer this service? Again, times have changed and you, as the negotiator, must have an idea of how costs have changed. If you are not sure, you may very begin on the wrong foot.
- Do I have a reasonable idea of what the buying (or my company) company’s budget range for this product or service might be? I find that more purchasers are less empowered to make decisions. So, when the expenditure is approved, it is often less than what the product or service truly costs. This situation creates an opportunity to make some important tradeoffs.
If you are not sure about the answers to these questions, think twice about making the opening offer. You might not be prepared well enough to anchor the conversation to your advantage. For a more thorough explanation of anchoring, read Negotiation Rules! A Practical Approach to Big Deal Negotiations.