Who Doesn’t Love Free Money?
Updated: Nov 19, 2018
Being able to see into the future is challenging, and gaining an agreement for what that future might look like can be complicated. However, most people can agree to do something if something should occur in the future. Contingency based negotiation is about creating tools to deal with that type of uncertainty. It’s about ensuring the goals and rewards that come as a result of your strategic sourcing activity actually generates a positive future impact on your business and is equitably shared.
Betting on Things You Cannot Control
You might think your operations run efficiently, that you are profitable, and that your customers will receive everything they order at the right price and in the right quantity. What if we were to tell you that in the future none of this might be true? External market conditions may cause for materials, labour, equipment, and currency to fluctuate at such a rapid rate that new strategies are required to overcome the change in economic climate. Contingency based negotiation can help you to make a better bet on those future events. It can also help your business to develop tools to become more accountable about how decisions are made, what opinions to listen to, and which actions to take.
Further to this, contingency based negotiations provides a way for you to value the future differently. For example, if your strategic sourcing agency were to generate hard dollar cost savings to your business of $10,000, would this unanticipated value be worth sharing 50-50? What if the savings were $1 million, would you then prefer a contingency fee that was something less than 50%? Of course. It’s understandable that any business would want to retain as much of the larger sum of savings as a result of the potential for material impact on the business itself.
It’s free money, something you had not anticipated, planned, or perhaps prepared for. How would you bet on what the future is worth?
We Don’t Win, Unless You Do
The process keeps everyone honest. It can be useful for creating fair and balanced negotiations that don’t unnecessarily impair good relationships with suppliers and customers you depend on. Setting the contingency based fee ahead of time, also means that when the outcome is achieved, and the metrics used for accounting are clean, then everyone is happy.
Get Creative and Advance Your Business
Is contingency based negotiations just another way to advance special projects within your business? Simply put, if your strategic sourcing service is doing their job in the right way, then they bear the risk of the negotiation and the pressure to create value for the business they are working for. However, it isn’t all hearts and flowers with a pathway paved in gold. Contingency based negotiation requires serious introspection, analysis, and the belief that savings exist to be uncovered by the service you hire, through a clear conversation and a shared perspective on what the future is worth.