Entrepreneurs´s Journal

June 29, 2003
Is It Worth It? You Get What You Negotiate
By Emily McHugh

Have you ever been charged a price for something and then ask yourself, was it really worth it? Are cherries really worth $3.99 a pound? Is a lawyer worth $500 per hour, an accountant $150 per hour, or a PR firm $10,000 per month? Well, it depends on several factors, the most important one being your personal valuation of their worth and ability to tangibly contribute to your success (or how much you like cherries!). Beware of "anchor price" intimidation — the tendency to blindly accept a quoted price. For example, if someone quotes a price of $200 for an item, and you feel it’s only worth $50, then you might feel awkward to offer $50 because the quote has been "anchored" at a significantly higher level. But in reality, the value to you may indeed be only $50. Then on the other hand, the quote might be right and the offer good, but budgetary constraints may force you to select and prioritize expenditures.

Whether you are trying to assess the value of stock for a company going public or the value of a mango in the supermarket, the thought process is basically the same. It is the negotiation process that allows us to arrive at the mutually acceptable value. However, knowing how to assess value informs the ability to negotiate. We spend practically our entire lives conducting strategic negotiations, starting with the first time we cried for our bottles as babes to asking the boss for a raise. It is a crucial survival skill to hone our negotiation strategies in order to obtain the value we seek.

In business, there is no shortage of services or products being sold. You as the business owner have to maintain somewhat of a defensively critical position so as not to be swayed by every wind of an offer that blows your way, while at the same time, keeping a vigilant eye for good opportunities. But only you can truly determine what is of value to you; never allow someone else to dictate value. An item or service may be worth a lot to the person offering it, but it is only truly valuable if it meets your requirements of direct tangible value, not someone else’s. In order to implement the discipline of systematic valuation, you have to understand what constitutes and determines value. This starts with doing your homework and due diligence.

The first step in establishing the criteria for evaluation is to identify what you need or hope to achieve by procuring a given item or service. Secondly, consider the alternatives — what are the tradeoffs if you spend more or less, and have you fully explored the available options to compare relative worth. Thirdly, consider what is appropriate for your particular, individual situation. What might be a good choice for someone else may not be a good choice for you. And finally, determine how you will realize the return on your investment — is the purchase an unrecoverable "sunk" cost, or will you be able to make back your money, and how much? All business-related expenditures represent an investment in your business. Therefore, you should always expect a return in order to justify the expense in the first place. The return may not be immediate, but it needs to be quantifiable. Remember, no one ever started a business with the sole goal of paying bills. So since expenses are inevitable, they need to be constantly justified as they directly relate to creating profit. Remind yourself on a daily basis why you are in business — to write checks or to receive them.

It is categorically imprudent to relinquish one’s thought process and instincts in deference to others. There are lots of people ready and waiting to think for you and charge you for the privilege. Only pay for what you need. Remember promises are conditional — you deserve to receive the value you have been promised.

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