How to Negotiate a Licensing Deal
Negotiating is a bit like dancing. You need to know some basic steps, find your rhythm and establish a rapport with your partner. Let's see how.
Disclaimer: The following information does NOT constitute legal advice and is only for general educational purposes. Each situation is different and specific legal issues usually require additional research and investigation, so do not rely on this article to address a particular legal issue; use this as a starting point to gain a general understanding. This article, although educational in purpose and substance, nevertheless, might be deemed attorney advertising, and prior results do not guarantee future success.
1. Know Your Position
Most people have no idea what they want out of life. This doesn't surprise me. But what does surprise me, is what little concept they have of what they want out of a given business deal. "Oh I don't know as much as I can get out of it." That's not very helpful to you, your opponent, or your lawyer if you have one. If you are starting a business with partners, and it's your idea, likely, you will want to protect your rights to the idea in case the business fails (i.e. you don't want your partners to "steal" your idea and find other investors without you). If you are contributing money but your partners aren't, you probably want to get paid back before they get any profit, or at least starting getting paid back gradually as your distribute profits. Know SPECIFICS about your position, otherwise, how can you ask for it, let alone bargain for it? Say, you are negotiating a contract. You want $10,000 for your product, but they only want to give you $5,000. How badly do you want the sale? KNOW your BOTTOM line BEFORE you speak to them. What is the absolute minimum price you will accept, that you refuse to be talked under. Then you will have to "guess" two things about your opponent: (1) what's the absolute most they will pay for it (2) how badly do you they need your product, which is both a function of (2a) how badly do they need it in absolute terms and (2b) can they get it from other places. How do you "guess" this stuff? First, know your market. Do you have competitors? If yes, do you offer something they don't? Does the customer know this? Don't expect the customer to know your quality or extras. And if you are guessing about your competitors, you need to do your homework. Also, do you know this customer? Do you have history? Do you know someone who knows them and their business practices? Maybe ask around.
2. Listen Closely and Respectfully
How well do you know your negotiating opponent? If not so well, you want to listen very closely about what they are saying. Learn to "read between the lines." For instance, in the above example, negotiating the contract, when they tell you your product is way too expensive, they may really be telling you they are in financial distress. Or maybe your competitors are way cheaper than you. If the latter, maybe you can get your full price or something near it, if you let them stretch out the payments. If your competitors are cheaper but don't provide service repairs like you, your customer may be telling you they don't know all the great things you do that no one else does. Listen respectfully as well. That doesn't mean portray weakness or act submissive. But if you acknowledge the starting legitimacy of the concerns or position of the other person, you won't create additional problems, like ticking them off at you. Once people are angry, they rarely give in, unless their back is against the wall. Here's how you can acknowledge them and their concerns respectfully, without weakening your position or fawning over them: "I know what you're saying. $10,000 seems like a lot money to me too. But did you know we provide free service? I bet no one else does. Did you ask Acme about that in their price?"
3. Communicate Clearly
I can't tell you how many people generate new problems because they talked passed each other. "The sky is blue!" "No, you idiot, the grass is green!" Neither of these statement is wrong, but they are arguing about different things. "$10,000 is absolutely way too much!" "The service plan is great!" Usually, good listening will prevent these issues. Your product may cost more because you offer great extra services. HOWEVER, if the buyer doesn't care about those services, you are not going to make that sale if they have other choices and you stay at that price. On the other hand, if you know services are important to them, communicate your value, patiently and repetitively. "I'm sorry $10,000 is just out of my budget." "I understand, but you said service is important to you." "It is, but I just can't afford it." "Can you afford to have it breakdown with no service?" "No, but are you saying your products breakdown?" "Of course not, we have high quality products, but you know this machinery is often used in stressful situations, and breakdowns are common in the industry - they are inevitable no matter the manufacturer or seller - and then what?" "Look, I could if I would, I just don't have that money on me right now." "How about if we stretched the payments over a year?" "maybe..." "I mean, where can you get this kind of service?" "well, no where not for your price, but..." "look if you can't afford it, I understand, but the service with the stretched payment might give you peace of mind and the time to pay it off comfortably without stress to you." Something like that.
4. Don't Sell Past the Close
Once you get a desire commitment or position, make sure you stop talking about it. You would be surprised, but I have seen people kill done deals by bringing up something else. "Ok, I'll give you $10,000, in four payments and you include the service." "Done, I'll even make sure you have access to a super-certified mechanic if the regularly certified one isn't good enough." "Wait, aren't all your mechanics super-certified?" "Um, no it's not necessary, because if the Level 1 Tech can't do it, we escalate it." "Well, is there a lot of demand for the super certified mechanics, because now I'm nervous when I need someone really good you only have one." It's tempting to get in an additional word but do yourself a favor and just clam up when you make the sale.
5. Put It in Writing
If you can, make sure you get the core deal on paper even a quick email. Thank you so much for your purchase. As we agreed, $10,000 for the machine, with service, with four easy payments over a year. This will avoid arguments in the future. Don't just write down $10,000 on the invoice because 6 months from now, the buyer might say they remember that they could provide 10 payments over 2 years. Trust me, I represent enough people to see simple completely avoidable problems like these pop up all the time. Even with sophisticated million dollar clients.