Risks, Revenues, and How to Use Them in Negotiation
It's easy to become lost in the details of a negotiation. There are a thousand small things that counterparties may be at odds over, and it's entirely possible to be pulled into a discussion you haven't prepared for. It can help you find your bearings if you remember that all negotiations are ultimately about risks and revenues.
Fair distribution means that each party bears some risk and will receive a good portion of the revenue. There are ways to make each element work for you in a negotiation.
There are many types of risk that you will need to manage. Your alternative to partnering with your counterparty may not be as valuable as you thought it was. Strategies that you employ during a negotiation may backfire. The largest risk that you'll need to worry about is the final agreement not paying off. This could be due to unforeseen complications, a dishonest counterparty, or an agreement that places an unrealistic burden on one party.
It's natural for one or both parties to be risk-averse. You can work towards an agreement by lowering manageable risks and increasing confidence. Some risk is unavoidable, but you can make sure that each party is set up with the resources they need to succeed.
You can also increase confidence and lower risk by paying attention to your contract. Vague language increases the risk of an unenforceable contract. Take the document and compress a PDF online and go line by line ensuring each responsibility and reward is clearly outlined. When drafting the final document, consider the presentation. A great-looking contract is easier to read and increases your counterparty's confidence.
Revenues are the more attractive aspect of a potential agreement. Both parties often want to get as much of the potential income from the deal as possible. Before entering a negotiation, you should decide on your priorities. Are you more interested in getting the best cost upfront or a larger percentage of the upcoming profits? Are you willing to sacrifice more money in exchange for an exciting market opportunity? It's important that you claim your top priorities, even if it means that you get fewer overall benefits from the deal.
You'll also need to agree on how the revenue will be divided. Is your counterparty looking for a profit share, base fee, or even a revenue share deal? What percentage of the revenue each party gets, how that revenue will be arranged, and which benefits each party is entitled to are all part of the negotiation.
Pick Your Battles
At the end of most successful negotiations, you will come away from the table with some risks and some revenues. Refuse to take on any risk, and you damage the potential deal. Come away without any value and you may not be able to live up to your end of the deal. The trick to an efficient negotiation is to increase your counterparty's confidence and prioritize to make sure you receive the revenues that matter most.
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