The Elements of Negotiation

ELEMENT 8The Crucial Role of Mathematics

It may come as a surprise, or perhaps a disappointment to some, that commercial negotiations fundamentally revolve around the creation and distribution of value, which inherently involves mathematics. My appreciation for numbers in these negotiations stems from their ability to convey unambiguous facts, devoid of emotions or subjective interpretations.

In negotiations, it is essential to have a precise understanding of your financial inputs and outputs. It's not just about knowing your expenses and revenues; it's also crucial to comprehend the value of your concessions to the other party. Sometimes, you can offer concessions that are cost-neutral to you but carry significant value to the other party.

For instance, if reducing your delivery time doesn't incur additional costs for you, it could still offer immense value to your client. Imagine a scenario where a $10 million investment's delivery time reduction, costing you nothing, accelerates the client's production start, potentially adding a value of $200,000 to $300,000 per month for them. This is an example of leveraging NegoEconomics for mutual benefit. (See Element 20 for a description of NegoEconomics.)

EXAMPLE | Know Your Numbers

Consider a real-life situation: A customer was negotiating to lease 120 cars for three years. In the final moments of the third round of negotiations, the customer insisted that the leasing company provide winter tires for the cars, free of charge, ...