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Tactical Tuesday:  Benchmarking.  (Aka:  Setting the Bar)

Posted by Andrew Hupert on Sep 19, 2017 11:45:32 AM

Benchmarking

benchmarking is a crucial negotiating tacticAKA: Setting the Bar, Comparables

Description: Benchmarking is one of the smartest -but most under-used - tactic on the list. You are establishing how “normal” gets defined by picking the external, objective index or measurement you’ll use to set value. Are your key variables tied to inflation rates, the price of oil, top-line sales, or bottom-line profits? The person who sets the benchmarks - the jointly accepted measures of value — gives himself a huge advantage. And the person who thinks that you don’t need benchmarks put himself or herself at risk.

Sample usage (Alvin and Bob): Alvin and Bob are meeting to discuss the size of Alvin’s compensation package after ClausTech absorbs his company. Alvin set the benchmark as a percentage of the big sale – putting his cut in the $ 0.5-1.5 million range. Bob was using Dice.com, a hiring board for entry-level techs, as his benchmark so he was thinking of $37 an hour range. There was still a long way to go before this negotiation even got started.

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Intent: Establish the objective standards and benchmarks that will be used later in the concession phase of the negotiation. This sets “market price” or “normal”.

Style: Collaborative or Competitive.

Category: Value Manager

CPI, or inflation rate, is a common benchmark in negotiation about costPIFH (Power/influence Fear or Hope): Power, usually. You are imposing rules and limitations on the rest of the negotiation. Can be Hope — if you are selling them on an unrealistically ambitious earnings model.

Counter: Push back, re-Anchor, & tell your story.  Flinch can work. Appeal to Reason.

Combination / Related: This often begins with an Anchor. Policy is good here, as is Secret Boss. Take it or Leave It.

Note: Benchmarks can be used to set value or measure change.  When you want to set value, look at market practice, custom, standard rates, and other accepted measures. Certain types of agents receive 6% of the value of the sale. Everyone knows it. You can try to get more (or pay less), but the benchmark is set and you need to justify moving away from that. There are usually more than one index or “accepted custom” out there, so be prepared to argue for the one you want — and to defend against the ones you don’t.

You can also use benchmarks to trigger future actions. If sales grow by a certain amount with a specified time, you’ll grant them a price break or an increase in commission. If inflation exceeds 4%, their monthly charges will be adjusted up.   You’ll earn 15% commission until you sell $1 mil, then it will go up to 18%.

Powerful counter-parties leverage their position by imposing their benchmarks, and it is very effective if you can pull it off. Claim that Policy or unseen authorities (Secret Boss) leave you with no choice — everyone has to use the ABC index or XYZ rate as the benchmark.   Just give yourself a way out that doesn’t undermine your credibility if he calls your Bluff.

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Topics: Tactical Tuesday, negotiating tactics, benchmark

Written by Andrew Hupert

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