Even a seemingly perfect deal can go wrong. Your operating costs can change, a major world event like COVID-19 can disrupt your ability to meet the requirements of your deal, or you may even just fail to consider a detail that would make the deal unprofitable.
So, what do you do then?
Should you try to cut your losses?
Don’t give up hope yet. There are a few tips and tricks you can follow if you aren’t ready to accept a bad bargain. We’ll show when and how to renegotiate a deal and some real-world examples, so you’ll have the best shot at getting a better deal — even if you think your deal is lost!
When to Renegotiate
Three main things spark renegotiations — a misrepresentation, a substantial change, or it’s simply outdated.
A misrepresentation happens when the numbers in a contract or offer are incorrect. It may also happen if either party discovers new information that wasn’t shown in the original offer.
A substantial change can be anything that affects either party’s ability to deliver on their part of the deal. This usually comes from a sudden change of revenue or a sudden change in prices of the products or services needed to deliver on the offer.
Finally, you may need to renegotiate a deal if it was made a long time ago and no longer represents your current circumstances. For instance, a company may need to raise prices to keep up with inflation, or a business may want to renegotiate a deal after their solution is successful.
Regardless of the reason, you need to remember one important rule — never renegotiate without a valid reason. Doing so is an act of bad faith, and it can seriously harm your relationship with your customer and make you seem less reliable.
If you’re going to renegotiate a deal, make sure you have a good reason and consider how it may affect the long-term.
Best Practices for Renegotiation
With that caveat out of the way, let’s get into the nitty-gritty of how to renegotiate. We’re going to look at four best practices to help you renegotiate the right way.
Prepare in advance
Successful renegotiations start with doing your homework.
Get the contract you want to renegotiate (it helps if you have an easy way to find and sort through these) and study everything you can about the details you want to renegotiate.
If, for example, you want to renegotiate the time-frame you have to deliver, look for any penalties if you don’t deliver on time, and why you both agreed on the original deadlines.
In some cases, you may find you don’t need to renegotiate after all.
If a renegotiation is needed, though, study and lay down all of the reasons, you’re asking for it. Gather any evidence you can that proves renegotiation is needed — new numbers or failed conversations, for instance.
The goal with any renegotiation is for both sides to be happy. So you’ll likely have to give something extra to balance what you’re asking for. Find their pain points to figure out where you can upgrade your part of the deal.
This process takes time, but it’s extremely important.
If you can get the other party to sympathize with you, they’ll be more likely to accept your new terms.
To build rapport with them, you need to get to know them first. Find out who they are and how they’ll benefit from the deal. Find out why they may oppose a renegotiation. And learn about their personality, their likes and dislikes, and their career.
Your goal is to find common ground you can use during the renegotiation.
Finally, when speaking to them, do your best to help them see the process through your eyes. Don’t place yourself as their enemy. Instead, place the reason you want to renegotiate as the enemy and yourself as the person who wants to figure things out.
Avoid Legal Arguments
Your primary focus when getting a renegotiation is to avoid bringing in the lawyers. Your lawyer may be of great help when you’re preparing your argument but you should leave them out of the actual renegotiation.
Bringing in lawyers can easily escalate the situation and make everything far more expensive than it needs to be. Their lawyers may find something you’re in breach of, and suddenly you’re in a complicated legal battle.
Instead, try to reach a solution person to person.
The better you can avoid a legal argument, the better the chances are for a successful negotiation.
Have a backup plan
Obviously, you want the renegotiations to succeed. However, even if you’re great at expressing your reasons, and even if all of those reasons make sense, there’s always a chance things will fall through.
What happens then?
Plan how you’ll approach the customer. You want to leave the door open for any future projects, so make sure you finish on good terms. You’ll also want to leave channels of communication open so you can continue working with them.
Finally, you can reduce the damage of a failed renegotiation by preparing internally. Prepare for the possibility of failure, and you’ll be more confident and may even find more possibilities to reach a compromise.
Let’s look at some real-life examples of renegotiations to see why they succeeded, and/or why they failed.
WGA renegotiates their contracts
During 2007, The Writers Guild of America (WGA), which represents over 12,000 writers for film and TV shows, tried to renegotiate their contract with the Alliance of Motion Picture and Television Producers (AMPTP), representing more than 300 production companies.
The WGA members were demanding a share of the revenue generated by their work. The AMPTP didn’t accept.
A walkout of practically all TV and movie writers started in November of 2007. They started a strike. This walkout ended up costing the industry over 3 billion dollars, drastically affecting content production.
Over 60 tv shows had to shut down production, and many movie productions were delayed indefinitely.
After 100 days of strike, the writers approved a truce and signed a new contract with the AMPTP where they accepted some residual payments for programs streamed online. Although this wasn’t a big deal at the time, the rise of streaming platforms drastically increased those revenues.
Learn from it:
The WGA didn’t get what it was striking for, but they got a deal that ended up being incredibly profitable in the near future. Be prepared to meet your other party half-way. Have potential alternate options ready.
Health plan provider prepares their team to renegotiate
In the United States, a health plan provider spent 70 million dollars per year, with one of its suppliers. But cost pressures from the recession of 2009 forced the company to ask for a renegotiation with its provider.
…A price reduction of less than 2%.
The health plan provider thought that was too low, so the team started to work on a better renegotiation. They identified a chance to move from a health plan provider’s data center into one that was offshore and utilized the cloud. This new center would give a more complete service for less cost due.
Once they had that card, they started to renegotiate. During the renegotiation, the team looked into every small detail, from the number of calls handled to the number of issues that were solved in the first call to get an accurate understanding of the value they provided.
After a lengthy renegotiation process, they ended up getting a reduction of 20% while also improving the services they got out of the company.
Learn from it:
Look into other options, but make sure you understand the value you offer your customers and the value your providers offer you.
Once you’re as informed as possible, use it to write a great proposal. The better informed you are, the better you’ll be able to handle a renegotiation.
Telecommunications provider leverages other bidders for a better deal
A telecommunications provider was changing to a different cell phone company to comply with a regulatory requirement. The company needed to renegotiate a new contract for customer service, and they needed to do it quickly.
Since they were pressured for time, they initially accepted a normal bid from one provider but decided to postpone finalizing it to renegotiate the terms.
They used the other bids and options they had as leverage to renegotiate what they would be getting.
Once the renegotiation was finished, the company ended with substantial savings, shaving off over 1 million dollars per year and obtained better contract language that allowed them to remove fees.
Learn from it:
If you are the one shopping for a new tool or provider, remember that you have a lot of power. Get multiple bids, pick the best one, and use the remaining ones as leverage to get a better deal.
You’ll be surprised how often the company will bend its own offerings to do business with you.
Don’t Give Up
Renegotiating a deal is hard. But if you have a valid reason and do your research beforehand, you’ll more than likely be able to end up with a better deal.
So, don’t give up when a deal gets hard. Dig into the contracts, make friends with the person on the other side of the proverbial table, and find a way to get the deal done.