Mastering the 5 Stages of Negotiation: A Step-by-Step Guide to Better Deals

Negotiation is everywhere, not just in sales. We negotiate deals in every aspect of life, from getting your toddler into their pajamas to servicing your car. Even in your relationships, you negotiate and compromise for the greater good.

That’s why salespeople must understand that negotiation isn’t a one-off event. Rather, it’s something you need to ingrain into your sales approach. Keep reading below to discover how to take control of the 5 step negotiation process below:

What is Negotiation?

Negotiation is a strategic discussion used to reach an agreement, compromise, or settle differences between two or more parties.

However, negotiations shouldn’t be confused with arguments or disagreements. Both sides aim for outcomes that benefit everyone – what we call “win-win negotiations.”

Overall, sales negotiations are a structured approach to negotiation. Selling achieves the price on your terms and conditions; negotiating is modifying your position to reach an agreement.

How Negotiations Work: 2 Types of Negotiation Approaches

In negotiations, people work together to find solutions that make everyone happy.

In these discussions, each party presents its standpoint, and the other party accepts the terms or proposes its own.

This cycle continues until both parties reach a mutually acceptable solution, and if they can’t, negotiations halt.

With that said, there are two primary forms of negotiation all salespeople should know about:

1. Win-Win Negotiations (Integrative Negotiation)

Win-win negotiations are when both parties come to the negotiation table and leave feeling like they have won. They focus on integrative or value-creative bargaining processes and techniques.

Rather than the traditional haggling or distributive bargaining process that most people are used to. Each party learns what the other party wants by utilizing an integrative or value-creative bargaining process. This makes working within those confines or restrictions easier and ensures both parties walk away satisfied and happy. 

When customers feel like they got what they wanted in the negotiation process, they will likely do future business with you. This can increase your repeat or returning business. In fact, studies have shown it is cheaper to obtain repeat business than it is to gain a new client.

2. Hard Bargaining (Distributive Negotiation)

Distributive negotiation occurs when one or both parties take an extreme position, which often creates a win-lose solution. One party wins and gets what they were looking for, while the other loses or feels like they did not get what they were looking for.

Winning at others’ expense might seem good since it is in your favor, but companies won’t return if deals feel unfair. That’s why using this approach might win one negotiation but lose in the long run.

The 5 Stages of the Negotiation Process

Good negotiation skills help you close business deals and solve personal conflicts in ways that benefit everyone.

However, negotiation can be a complex and challenging process, and many people may need help knowing where to begin. That’s where a structured approach can be helpful.

Understand how to control the discussion by learning these 5 negotiation steps below:

1. Preparation

Preparation is key to success in many sales areas. In negotiations, it’s your first vital step to achieving the outcome you want. To prepare for your win-win negotiation, research both sides to understand what realistic outcomes you can achieve.

What to Include in Your Preparation Checklist:

• Define your BATNA and walkaway point: Your “Best Alternative to a Negotiated Agreement” is your backup plan – what you’ll do if talks fail and the minimum terms you need.
  
• Establish clear goals: Map out both your short-term wins and long-term relationship objectives.
  
• Analyze your position: Take stock of your strengths, weaknesses, and potential weak points before walking into the room.
  
• Research the other party: Understand their viewpoint, business challenges, and what they might need from this deal.
  
• Determine your strategy: Plan both your process (how you’ll negotiate) and content (what you’ll negotiate).
  
• Prepare for tactics: Anticipate potential tactics from the other side and have counter-tactics ready.

Prepare An Offer They Can’t Refuse

Then, you can prepare a variety of concessions that you’re willing to offer to maintain your working relationship with the other party. You should also determine your BATNA (“best alternative to a negotiated agreement”) at this stage. Lastly, your preparation will include setting the negotiation’s “ground rules”: where will you meet? At what time? For how long?

Negotiation Preparation at a Glance

Focus Area	Key Questions to Answer
Your Position	What’s your BATNA? What’s your walkaway point?
Goals	What must you achieve short-term? What matters for the long-term relationship?
Strengths & Weaknesses	Where do you have leverage? Where might you be vulnerable?
Other Party	What drives their decisions? What problems can you solve for them?
Strategy	Which approach fits this situation and counterpart?
Logistics	When and where will you meet? Who should attend? What’s the time frame?

2. Exchanging Information

Next, you exchange information about your initial position with the other negotiating party. We all know the importance of creating a friendly, accommodating environment free of aggression and pressure. That’s why we suggest you allow your prospect to start this stage of the sales negotiation.

While a polite gesture, it also gives you a chance to scope out the scale of their offer. You can use this time to alter your terms if needed.

Keys to Effective Information Exchange

• Share your positions and interests: Beyond stating what you want, explain why it matters to your business and goals.
  
• Practice active listening: Focus completely on understanding the other party’s perspective before formulating your response.
  
• Communicate clearly: Articulate your wishes and needs in straightforward, jargon-free language.
  
• Establish ground rules: Set expectations about the negotiation process, including time frames and discussion topics.
  
• Create a collaborative atmosphere: Foster a positive environment where both parties feel comfortable sharing information.
  

Active listening skills are vital for understanding how your counterpart sees the situation during this stage. That way, you can help to reach an agreement that benefits everybody. Many salespeople opt to take notes that record all points made by the other party to be clarified later.

Ultimately, it’s crucial for each party to “make their case” so that they have an equal opportunity to share their interests, concerns, and hopes.

Key negotiation skills needed to successfully complete this stage of the negotiation are:

Questioning

Help the other party think deeply about your offering and if you can help them solve it! Below are several questions you can ask to understand where they’re coming from – and where they want to go:

1. What are the most significant challenges you face?
2. Are you overcoming those challenges now?
3. How are you trying to overcome those challenges?
4. Are you satisfied with how my competitors are servicing you?
5. What other solutions are you looking for?

Active listening

Place the focus back on the other party to make them feel valued. That way, they’re more likely to open up about their issues or concerns.

Information Exchange Framework

Element	Purpose	Techniques
Initial positioning	Establish starting points	Clear statements with supporting rationale
Underlying interests	Reveal true motivations	“What matters most to us is…” statements
Active listening	Understand perspectives	Paraphrasing, clarifying questions, note-taking
Ground rules	Set process expectations	Time limits, speaking order, topic boundaries
Positive environment	Foster collaboration	Comfortable setting, refreshments, breaks as needed

3. Clarifying

Both parties continue their discussion during the clarification stage by justifying their “claims.” If one side is unhappy, they should calmly discuss reaching an agreement that benefits both sides. This stage allows one party to provide the other with any documentation that helps support its position.

What Happens During Clarification

• Elaborate on positions: Both parties provide deeper explanations of their needs, constraints, and priorities.
  
• Support claims with documentation: Present relevant data, case studies, testimonials, or other evidence to reinforce your position.
  
• Address disagreements calmly: Tackle points of contention directly but professionally to reach understanding.
  
• Identify common interests: Look for shared goals that can serve as a foundation for compromise and agreement.
  
• Clear up misunderstandings: Resolve any confusion about terms, expectations, or deliverables.
  
• Explore underlying motivations: Discuss the unstated drivers and hidden agendas that might be influencing the negotiation.

Effective Clarification Techniques

Technique	Purpose	Example
Use probing questions	Uncover deeper needs	“What’s driving that requirement?”
Evidence presentation	Validate claims	“Our data shows that implementation typically takes…”
Paraphrasing	Confirm understanding	“So what I’m hearing is…”
Identify common interests	Find common ground	“It seems we both want to ensure quality control.”
Test assumptions	Surface hidden concerns	“Are you concerned about the timeline because…?”

Keys to Successful Clarification

1. Maintain a curious, non-defensive tone
2. Focus on issues, not personalities
3. Acknowledge valid points from the other side
4. Be prepared to adjust your position based on new information
5. Document points of agreement as you progress

4. Bargaining

The bargaining stage is critical to successful deal-making because it begins a give-and-take process. Both parties can suggest different offers to the problem whilst being mindful of their pre-considered concessions.

The best negotiators know how their emotions, body language, and verbal communication skills translate into a productive conversation that helps them reach a deal. After all, it would help if you aimed to reach a win-win negotiation at this stage.

Core Elements of Effective Bargaining

• Exchange offers and counteroffers: Engage in a structured back-and-forth to narrow the gap between positions.
  
• Propose creative solutions: Suggest different approaches to resolve the problem and meet both parties’ needs.
  
• Manage concessions strategically: Know when to give ground and what to ask for in return to maintain balance.
  
• Maintain communication control: Use strong verbal skills and keep emotions in check throughout discussions.
  
• Stay flexible and adaptable: Be prepared to pivot your approach as negotiation dynamics shift.
  
• Focus on win-win outcomes: Consistently work toward solutions that create value for both sides.

The Bargaining Process

Stage	Actions	Goals
Initial offers	Present opening positions	Establish the bargaining range
Counteroffers	Respond with alternatives	Move toward middle ground
Solution proposals	Suggest creative options	Find unique ways to create value
Concession management	Give strategically	Balance gains and losses
Final adjustments	Fine-tune the agreement	Ensure all key points are addressed

Bargaining Best Practices

1. Never make one-sided concessions
2. Ask for something in return for every concession
3. Make smaller concessions as bargaining progresses
4. Keep track of all offers and counteroffers
5. Look for non-monetary value-adds when price becomes a sticking point
6. Signal flexibility on less important items to gain ground on priorities

Win-Win Tactics

• Bundle multiple issues together for trading
• Use contingent concessions (“If you…, then we…”)
• Explore non-monetary terms that are high-value to them but low-cost to you
• Focus on expanding resources rather than dividing fixed resources

5. Making a Commitment

The final step in the negotiation process is formalizing the agreement reached in the previous stage. In major negotiations, this often requires contract negotiation to iron out the specifics with a formal contract. But before this happens, both parties should thank each other for attending the discussion—regardless of the outcome.

This is because negotiations are all about creating and maintaining long-term relationships. So you should always put your best foot forward to secure that deal!

Key Components of Commitment:

• Outline expectations and responsibilities: Clearly define what each party is committing to deliver and by when.
  
• Document the agreement: Put everything in writing, possibly with legal review for complex deals.
  
• Plan for implementation: Develop a roadmap for successful execution of the agreement.
  
• Establish tracking metrics: Set clear and measurable indicators to monitor results and progress.
  
• Maintain open communication: Keep channels open during implementation to address any issues quickly.

Be prepared for adjustments
Remain flexible as circumstances may change, requiring adjustments.

Then, outline each party’s expectations to ensure that the compromise will be effective. This often requires a follow-up to confirm that the implementation is going well.

Finalizing the Deal Checklist

1. Review all terms to ensure mutual understanding
2. Document specific deliverables and deadlines
3. Clarify how performance will be measured
4. Establish points of contact for implementation
5. Set dates for progress reviews
6. Express appreciation for the collaborative process

Post-Agreement Follow-Up

• Schedule regular check-ins to monitor progress
• Address any implementation challenges promptly
• Recognize and celebrate milestones
• Document lessons learned for future negotiations

What are Negotiation Skills?

Negotiation skills are the abilities that allow you to reach agreements and resolve conflicts through discussion. These skills help you navigate conversations toward mutually beneficial outcomes while maintaining positive relationships. In sales contexts, strong negotiation skills can be the difference between closing a deal and losing an opportunity.

Essential Negotiation Skills Every Sales Professional Needs

• Active Listening
  Going beyond hearing words to truly understand the other party’s needs, concerns, and motivations. This means focusing completely on what they’re saying rather than planning your next response.
  
• Clear Communication
  Expressing your points concisely and effectively without jargon or unclear language. Good negotiators can articulate complex positions in simple, persuasive terms.
  
• Emotional Intelligence
  Recognizing and managing your own emotions while also understanding and influencing the emotions of others. This includes staying calm under pressure and reading non-verbal cues.
  
• Analytical Thinking
  Breaking down complex problems, analyzing alternatives, and making calculated decisions based on available information.
  
• Patience and Persistence
  Knowing when to push forward and when to step back. The best negotiators understand that reaching agreement often takes time and multiple rounds of discussion.
  
• Creativity
  Finding innovative solutions and alternatives when faced with seemingly incompatible positions. This often means looking beyond price to find other valuable concessions.

How These Skills Apply Across the Negotiation Process

Negotiation Stage	Key Skills in Action
Preparation	Analytical thinking to assess positions and plan strategy
Exchanging Information	Active listening and clear communication to understand needs
Clarifying	Emotional intelligence to address concerns without escalating tension
Bargaining	Creativity to propose solutions and patience during back-and-forth
Making a Commitment	Clear communication to document agreements and build long-term trust

Developing Your Negotiation Skills

1. Practice purposefully: Seek out opportunities to negotiate in low-stake situations before tackling major deals.
2. Observe expert negotiators: Watch how successful colleagues handle challenging negotiations and learn from their techniques.
3. Review your performance: After each negotiation, assess what worked well and identify areas for improvement.
4. Role-play scenarios: Simulate challenging negotiations with colleagues to test different approaches.
5. Seek feedback: Ask for honest input from peers or mentors about your negotiation style and effectiveness.

Strong negotiation skills don’t just help you close more deals – they help you build lasting business relationships that generate value long after the initial agreement.

Real-World Negotiation Examples: Applying the 5-Step Process

Understanding negotiation principles is one thing, but seeing them in action brings them to life. Let’s explore how the 5-step negotiation process works in common sales scenarios.

How to Negotiate When Selling Professional Services

Scenario: A Marketing Agency Pitching to a Mid-Size Business

Preparation: The agency researches the prospect’s current marketing efforts, competitors, and industry challenges. They establish their walkaway point ($8,000/month minimum) and prepare a range of service packages to offer flexibility.

Exchanging Information: During the initial meeting, the agency asks: “What marketing strategies have you tried before? Which worked and which didn’t?” They learn the prospect values measurable results over creative awards, and have had negative experiences with agencies that over-promised.

Clarifying: The agency presents case studies showing ROI for similar businesses and addresses concerns about accountability by explaining their reporting process. They discover the prospect’s main worry is being locked into a long-term contract without seeing results.

Bargaining: Instead of lowering their price when the prospect hesitates, the agency offers a 3-month trial period with specific performance metrics before committing to their standard 12-month agreement.

Making a Commitment: Both parties sign an agreement outlining deliverables, performance metrics, and the trial-to-full contract transition process. They schedule weekly check-ins for the first month to ensure alignment.

How to Negotiate in Complex B2B Sales

Scenario: Software Company Selling an Enterprise Solution

Preparation: The sales team analyzes the prospect’s current systems, pain points, and potential ROI from implementing their solution. They identify key stakeholders and their likely priorities.

Exchanging Information: Through multiple discovery calls with different departments, they learn that IT is concerned about integration complexity, operations want implementation speed, and finance needs the cost spread across two fiscal years.

Clarifying: The sales team presents a custom implementation plan addressing each department’s concerns, backed by technical documentation and timeline projections.

Bargaining: When faced with budget constraints, instead of reducing the total price, they restructure the payment schedule across multiple quarters and offer free training for the IT team ($15,000 value).

Making a Commitment: Both companies sign a detailed contract with implementation milestones, success metrics, and a governance structure for ongoing collaboration.

Key Takeaways to Apply to Your Negotiations

Notice how in each scenario, the negotiator:

1. Prepared thoroughly with research and flexibility
2. Asked questions to understand the other party’s true needs
3. Used evidence to support their position
4. Found creative solutions beyond simply adjusting price
5. Created clear agreements with follow-up mechanisms

The most successful negotiations often involve trading value rather than just haggling on price. By identifying what’s valuable to your prospect but relatively inexpensive for you to provide, you can maintain your profit margins while still giving the customer a win.

The Negotiation Process FAQs

Mistakes to Avoid During the Negotiation Process

We’ve discussed how to take control of negotiations, but what are some common pitfalls? Find out below what to avoid when preparing for your next sales negotiation:

Losing Control of Your Emotions

When under stress and pressure, you can become so emotionally involved that you revert to instinct rather than logic. This means that you react rather than respond. Meaning that you either try to dominate the process or ultimately give in to the other party’s needs.

A Weak Pre-negotiation Position

Again, this all comes back to preparation, but having a weak pre-negotiation position is a cardinal sin. If you haven’t identified the other party’s needs, desires, and plans, you can’t accurately position your offering. You leave yourself open and vulnerable to being asked for discounts or terms you don’t feel comfortable providing.

Talking Too Much

Don’t talk yourself out of a win-win negotiation by talking too much. Too many salespeople think they need to do all the talking when meeting for a negotiation. They dominate the conversation, leaving little time for the other party to share anything about themselves or what they’re looking to achieve from the deal.

Aiming for a Win-lose negotiation

Don’t assume that “the pie is fixed”; as stated before, a win-lose solution may seem beneficial if the deals skew in your favor, but other businesses will not want to do business with your company if the deals feel one-sided. This situation risks neither party getting what they were looking for, which creates a lose-lose negotiation.

Ultimately leaving both parties frustrated and unhappy is bad for employee morale and repeat business. 

Also read:

• 10 Essential Sales Negotiation Skills Every Salesperson Needs to Master
• Adapting Negotiation Skills to Our ‘New Digital Normal’
• How To Deal With Low-Budget Customers

Tips for Successfully Navigating the Negotiation Process

Below are several best practices you should know when entering or approaching a negotiation.

Build Value

The definition of Value is your prospect’s perceived monetary worth. In simple terms, it is exactly how much someone is willing to pay for a product or service. However, it is also how much someone considers something essential or beneficial or has a high opinion of it. Use your negotiation skills to justify your price with evidence.

Can you present qualitative or quantitative data to your prospect to show why it’s worth what you’re asking? How about testimonials, case studies, and reviews? These are excellent ‘proof devices’ that demonstrate how valuable your offering is.

Know When to Walk Away

You might find instances during sales negotiations where the other party makes demands that your business just can’t facilitate; whether that involves radical amendments or colossal price reductions, it’s important to know that you can walk away.

However, it would be best if you tried first to slowly disengage from talks by displaying dissatisfaction with the evolving process. If the prospect isn’t picking up on your signals, gracefully bow out of sales negotiations to save you both from wasting time and effort.

Leverage the Power of Emotion

Although it’s standard advice to minimize emotion in negotiations – they’re often primary motivators of the other parties’ decision-making. This is why you must leverage the power of emotions during the negotiation process, so consider what your prospective buyer cares about. Once identified, tailor your messaging and approach them accordingly. It often helps if your solution addresses long-term goals in a personalized way.

Use Active Listening Skills

By expressing genuine interest in the person in front of you, you’re making them feel valued, which builds trust quickly. That naturally creates a real personal connection. As the conversation progresses, you may find that you have common goals, ways to help each other or even ideas that help your business meet a specific need.

Close More Deals; Master the Art of Negotiation

Profit, relationships, and deals are won or lost during negotiation. When armed with the right tools and skills, sales professionals can optimize outcomes and avoid profit loss while preserving crucial relationships for long-term business opportunities.

Our comprehensive negotiation training teaches you what’s important to counterparts, how to prepare effectively, influence the other party, and overcome difficult situations to secure deals.

Whether you’re an individual looking to sharpen your skills through our self-paced e-learning course or a sales leader wanting live, customized training for your entire team, we provide the strategies needed to navigate negotiations that positively impact both parties and inspire future business.