Price Breakdowns to Slice the Cake

Planning your negotiation strategy is critical for a successful outcome. Deploying appropriate tactics along the way, however, is what moves your strategy forward. Simple tactics require little effort to deploy, but can be very effective in getting the concessions you want from your counterpart. The last of the five for you in this series is called slicing the cake.

Whenever you send out a request for proposals to complete a project, the replies you receive from potential contractors will normally give you a list of deliverables and a package price – one figure. Go through your proposals carefully and select the contractor you want to work with, but don’t take their first offer at face value. Chances are it’s been padded for extra profit and to allow room for flexibility when negotiations begin.

To ensure your success in reducing their price, slice the cake. Ask your contractor for a breakdown. Ask for a price list of each deliverable item they’re offering to you. The total value of their breakdown should obviously be equal to their package price.

You gain two advantages in asking for a price breakdown. First, it’s easier for you to gain a sense of the market value of each item in their offer. If, for example, they seem to be asking a high figure for labor, you can challenge it based on market value and evoke the competition, stating that other contractors charge less for labor. On the prices of materials, you may even be able to point out some cost inefficiencies that your counterpart has, thereby lowering costs for both you and them and creating a long-term win-win situation.

The second advantage is, it’s easier to negotiate several smaller figures that it is to negotiate one large figure, although it may take more time. Smaller figures give you a greater sense of what you are negotiating for, and concessions on each item can be easier to achieve. When all is said and done, each concession you receive on each item in the breakdown will add up to a discount greater than you may have achieved negotiating the package price.