Business Negotiation Strategies – Lowballing

Being able to negotiate well is key to doing business. Different people get different prices for the same things. In a competitive market, this can make or break a business. There is a lot of psychology going on here and it’s important to understand some good tactics.

One common strategy is called “Lowballing”.
Lowballing is when you give a really low offer for something you want to buy. You probably don’t expect to actually get the item for this price, but it gives a starting point for negotiation. Even if the other person knows you are lowballing, psychologically it is difficult to totally disregard this initial number. The end price will probably be closer to this initial low offer than it would have been otherwise.

Suppose you want to buy some small company and the price of the company is really hard to determine. Both you and the owner really don’t know what the company is worth. Now imagine you are willing to pay $ 2 million. for the company. The owner doesn’t know that. It might be a good idea to offer something like $ 1 million.

This gives the owner some idea of what you will buy the company for. He will probably try to negotiate the price higher, but you’ll probably be able to get the company for much lower than you would have if you didn’t do this.

If you have employees, lowballing is also a good strategy to pay them a relatively low amount of money. Suppose that you are willing to hire someone for $4000 USD per month. Start with an offer of $2000 and let the employee negotiate up. They might say $3000. Some of them might even take the $2000 or something very close to that. This is a very powerful tool if used properly.

If you are looking for a job, you need to realize that your future boss is probably lowballing you and you should come back with a high counteroffer. It’s not necessary to accept anywhere near this price.

I’ve seen a lot of people I know get underpaid because they didn’t know how to handle lowballing. I know some bosses who are great at it and have many employees working for them for a very small amount of money compared to what they are worth.

This entry was posted on Sunday, September 12th, 2010 at 2:09 pm and is filed under Negotiation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.