To Close The Deal, Leave Yourself Room To Concede

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In today's market, the best M&A deals go to the shrewdest negotiators. To ensure you get the best deal, make sure you have your concession plan ready before you make your first offer.

Editor’s Note: Prof. Medvec will be one of the keynote speakers at our upcoming CEO Leadership Conference in Phoenix, Nov. 4 & 5. Please join us. 

Leaving yourself room to concede is a great way to alleviate your fear in negotiating. The very act of conceding makes you look flexible and cooperative, and it increases the likelihood that you will settle an agreement. As you make your first offer, you should plan to concede.

In fact, I would suggest that you want to make adjustments to your starting point. When you concede, the other side thinks they are winning; they become more satisfied with the deal, are more likely to settle, and are more inclined to want to do a deal with you again in the future. Research also reveals that people are actually happier to pay more when the other side is seen to concede than they are paying less in a negotiation that concludes with no concessions.

In order to give the other side the feeling of winning, you need to plan and purposely give yourself ample room to adjust. You want your counterparty to feel like they won while you got everything you wanted, so you should plan to concede.

I recommend that you develop your concession plan before you make your first offer. It is not that you will concede if you have to or concede if they make you; but rather, I encourage my clients to recognize that they want to concede. If you make a first offer that is immediately accepted, you should consider it a very bad day; if it was that easy for the other side to accept, you probably could have secured a much better deal. You want to concede.

The Importance of Concessions

I am often asked how ambitious a first offer should be. I always say your first offer should be more ambitious than your goal, so that you have room to concede and still get to your goal. A first offer is rarely immediately accepted and, as noted earlier, if your first offer is immediately accepted, it is probably the case that you made a poor first offer and could have asked for more.

If we deliver our first offer too close to our own reservation point, we do not give ourselves enough room to move. This inability to move makes an impasse and damaged relationships more likely. The interesting thing is that negotiators often start close to their own reservation point when they are very worried about the relationship and do not want to offend the other side with an ambitious ask. This is when people will often start to “negotiate with themselves” before making the offer.

I watched one consulting firm do this once. Three partners were on the phone discussing an offer they wanted to make to a client; one suggested that the offer should be for $2 million. Another partner said he thought this seemed too high, stressed that the firm’s relationship with this client was critically important, and suggested they go in at $1.8 million. The other partner said that he felt other firms would come in at $1.7 million. The three considered $1.7 million and said perhaps they should make their offer for $1.6 million, so that they would stand out from their competitors. I pointed out to the three of them that their costs for the project were at $1.5 million, so the $1.6 million offer would leave them little room to concede. I proposed that they go in at $2.5 million, leaving room to concede so that they could demonstrate their interest in working with the client.

I told them that a concession made before you start the negotiation counts for zero in the relationship bank. People like to see you concede during the negotiation—not before the negotiation begins. The other side never knows about concessions you made before you started the negotiation, so they cannot appreciate this movement. When we start close to our reservation point and do not leave ourselves room to concede, we look stubborn and may damage the relationship, even though our intent was to look reasonable and concerned about the relationship.

You need to concede while you are in discussion with the other side, and you need to highlight these concessions. You also need to rationalize the concessions that you make. If you ask for $100 million, and when the other side pushes back you immediately drop your request to $80 million, it looks like you were just trying to assess if the other side was an idiot who would pay $100 million because you seem to have been perfectly willing to settle at $80 million. To avoid this impression, you need to ensure that you build a rationale for the concessions you are making and that you never negotiate a single issue. When you have a package of issues on the table all being negotiated at the same time, you can craft a rationale for your concessions.

While you need to have a plan to concede, you also need to know at what point you would walk away. It is important to know your reservation point because there is often a lot of pressure on you to “do the deal,” and it is better to walk away than to do a deal that is worse than your reservation point. But be sure to negotiate around your goal, not around your reservation point, to reduce the need to walk away. Following these strategies will reduce your fears of losing the deal, ending with an impasse, or taking an agreement when it would have been better for you to walk away.

Excerpted with permission from Negotiate Without Fear: Strategies and Tools to Maximize Your Outcomes (Wiley, July 2021).

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