How and When to Negotiate

When you should negotiate

Almost always …..Capitalism is based on open markets where participants can negotiate pricing, ultimately producing efficient markets that price all available information.  In reality we almost never negotiate the prices we pay for almost everything, but we should. This article will address when you should negotiate and vendor specific tips to help you get major discounts.  For the most part, I do not delve into general negotiating tactics as there has been a ton of literature on the subject. I would highly recommend Getting More: How you can negotiate to succeed in work and life by Stuart Diamond, which  first heard about on the great podcast the Daily Churn.

General precepts for negotiation/asking

Closed mouths don’t get fed

In finance a saying my old boss was fond of was always, “ask for the order.” What this meant in the context of trading was you don’t get the business unless you explicitly ask a client for it. The same holds true in a negotiation. You only get something if you ask for it. You won’t get a discount or better quality item/service unless you explicitly ask for it.

You are not harmed by negotiating

Negotiating is not the most natural thing to most people. American society has conditioned us to feel awkward when asking for something above and beyond that which is standard, yet in other societies negotiating is the norm. You will not get harmed in any way by negotiating. Like anything else in life, it gets easier the more you do it. Practice negotiating on smaller things like antiques where negotiating is more the norm until you are comfortable negotiating.

Consider all elements of the deal

Price is the almost always the single most important part of any negotiated deal, but not the only consideration. To maximize your gains/discounts consider all elements of a deal, which I have listed out below. Note that business deals have additional elements, but this article is focused on consumer purchases.

• Payment method. Paying with a credit card usually costs a merchant 1-3%. Conversely if you are using a rewards card you are usually getting 1-2% in rewards or more if you are meeting a sign-up bonus. If the seller is unwilling to budge on price always ask if they will let you pay with a credit card without a fee.
• Payment terms. Businesses have a really high cost of capital. If you offer to pay them quickly you should ask for a commensurate discount. Conversely if you yourself need cash now, ask for longer payment terms.
• Quality and upgrades. Always ask for a better quality or upgraded item/service especially when you are dealing with fixed capacity that has a low or zero marginal cost.
• Speed of delivery. If your water heater is broken, chances are you want it done now unless you are a sadist who enjoys cold showers. For most other major purchases you can probably wait if you need to. Especially if you have a major home improvement project, you can potentially get a significant discount by allowing the contractor to provide the service when it best fits their schedule.
• References, referrals, and reviews. For a new business in particular, they may be willing to give you a significant discount if you agree to leave favorable reviews on Yelp/Google/Tripadvisor etc. Similarly, companies that spend a lot on leads and marketing such as real estate and most contractors, may give you a discount if you agree to give them a certain number of qualified referrals.

Trade things of unequal value

One of the more useful ideas in the book Getting More: How you can negotiate to succeed in work and life by Stuart Diamond, is the idea of trading things of unequal value. A dollar is a dollar for everyone, but every other consideration in a negotiation is likely to have unequal value to the participants. Whenever possible try to offer things with little value to you that are likely to have outsized value to the other negotiating party.

 An upgraded room with an ocean view may cost almost nothing to the hotel, but may make your vacation infinitely better. Conversely having your home improvement project done in a month instead of a week, may have no impact on your life, but it may allow the contractor to better schedule labor at a time that is more favorable to them. Online reviews take a few minutes, but can have an outsized impact on a small businesses success especially when they are starting out.

When to negotiate

• Purchases over $500
• Medical bills
• Cars
• Contractors and repairs
• Items with high margins: Jewelry, boutique clothes
• Services with high margins: Software, lawyers, consultants
• Resold items and antiques

Purchases over $500

If you are buying something for $500 you can almost always get some kind of discount because there are enough built in margin dollars that salespeople usually have the ability to offer discounts. Yes there are some situations such as buying a tv at Costco for $1,000 where you probably aren’t getting a discount, but for the most part there is room for negotiation.

Medical bills

I had previously written about medical bills and have reproduced my writing below.

Several (six) states including CA, NY, CO, and CT have legislation that bans medical providers from including medical debt on your credit report. Other states are working on similar legislation. Google your state to determine whether or not it has the aforementioned legislation in place.

As a result of this legislation, you have a HUGE amount of leverage if you live in one of these states and have a large medical bill. You can negotiate your bill down significantly because there is nothing the provider can do if you do not pay. I am not suggesting you stiff anyone for services that you received but if a bill is incorrect or grossly inflated than use this legislation as a way to reduce the bill.

Even if you don’t reside in one of the states above, still ask for a discount, it never hurts to ask, the worst they can do is say no. Simply call the number on the bill and use the following magic words, “is there a discount if I pay right now”. Providers only get a small percentage of what they ultimately bill and they have a ton of uncollectable debt so they are often willing to give a discount for early payment even if they can still resort to credit reporting in some states.

I have extensively used this strategy in my own life. For example, I recently received an $1,100 bill for some specialized blood tests which was ridiculously expensive, but unfortunately necessary. I called and asked the billing agent, “is there a discount if I pay right now”. I received 40% off the non-copay and deductible portion of the bill which ended up being about $260 or roughly a 24% discount off the total.

If you are truly pissed off at a provider and reside in a state without medical debt reporting you can always simply not pay them and let time pass. Over time they will be willing to take an increasingly small amount of money. Again I am not advocating for this position, but the reality is that many people are charged exorbitant amounts for healthcare that is not commensurate with the value delivered.

Cars

There is a special place in hell for crooked car dealers. Unfortunately, the process for buying a car is extremely archaic and supported by huge lobbying arms. When you buy a car you should almost never pay the Manufacturer’s Suggested Retail Price (MSRP). There were exceptions during Covid when shortages made all cars temporarily more expensive. When buying a car every item should be the subject of negotiation. For more detailed strategies on car negotiations, listed to the Daily Churn podcasts’ great two episode series on buying a car.

Here are a few standard practices you should adopt in car negotiations to get the best deal possible.

• Assume they are lying. Unlike negotiating in virtually every other context, assume bad faith on the behalf of the car dealership. They will lie to your face and not care. When confronted with their own lies they will seek to shift blame towards a manager or someone else, but they will never fess up to lying. 99% of the time what they claim is mandatory is not (with exceptions like vehicle registration fees)
• Know the price you want to pay and write it down. Its critical that you understand the fair market value and for new cars, the MSRP for the car you are buying. Without the North Star of a fixed price, it will be a lot easier for a dealer to take advantage of you.
• Bring documentation. Research the car(s) you are interested in and bring print outs of other dealers ads and your dealer’s advertised price. Bring duplicates of the documents as there is always a chance they show the documents to their manager and “accidentally” lose them.
• Call to confirm an advertised price. Call and confirm the dealer’s advertised price. Get the name and hours of the salesperson who confirmed the deal. If you are in a one party consent state (CA is two party) such as NJ/NY/TX, consider recording the salesperson confirming the price. 
• Don’t be afraid to walk away and set a time limit. The dealer intentionally makes the process a huge pain and makes you sit there for hours because it increases the cost of leaving. The longer you sit and the more painful the process, the less likely you are to want to go through it again, you therefore become vested in just getting the deal done. Don’t let them win by exhausting you, if they aren’t giving you the deal you want, walk. If you are made of tougher stuff and don’t mind coming in guns a blazing, you can also set a time limit such as 4 hours before the deal and tell the dealer that you will walk at 4 hours and 1 minute. A less combative method is to incentivize the dealer with a $100-300 cash tip if they get it done in X hours.
• Do not sign up for coatings, insurances or warranties which are never mandatory. The margins on these items are extremely high and almost never worth getting. They will push these items extremely hard and falsely claim they are mandatory, but they are always optional. I recently had a dealer try to add $1,700 in coatings that may or may not have existed. They eventually brought 5 people in the room and were verbally threatening us, until we noticed they were illegally recording us and they immediately found their way to take $1,000 off the supposedly mandatory fee. Our salesperson who later quit told us that such tactics were why he quit.
• If leasing, check out Leasehackr for the best deal before going to the dealer. Leasehackr has great tools for finding the best deal on leases. It also has a great forum where dealers post and where brokers/agents post potential deals.
• If you don’t want to deal with any of this, hire an agent. There are car buying agents that will deal with the entire process for a small fee of less than $1,000. Sometimes even with their fee, given their knowledge, it can be cheaper and way more convenient than going to the deal yourself. Carintelligent is one of the larger players in the buying agent space. I have not used them but they have good reviews. Ask around your network as there are tons of local agents in each city.

Contractors and repairs

I recently had the misfortune of having to replace our tankless water heater that was starting to fail. The first contractor we spoke with wanted 20% more than the second vendor. We received a third quote that was an extra 5% less than the second vendor, but we liked the second vendor more. We therefore sent the third vendor’s quote to the second and used it as a way to get concessions. We ended up getting an additional 5% off the second contractor’s quote and were able to use credit card to pay which normally required a 3% fee.

• Always get multiple bids. The more bids you have, the more you can leverage one bid against the other. At some point there are significant diminishing returns to additional bids, but having at least 3 bids allows you to roughly triangulate the right price and use the low bid to get price concessions from the more expensive contractor if you want to go with them.
• Timing can get you a discount. If the job doesn’t need to be done urgently you may be able to get a discount by allowing the vendor to schedule the job at a time that is the most favorable to their schedule.
• Ask to use a credit card. Being able to use a credit card is a 1-3% discount. Contractors will usually charge you a fee to use a credit card. If you can get them to waive the fee, you get to keep the points. A large job can help you meet almost any sign-up bonuses minimum spending.

Items/services with high margins

High-end clothing, appliances, outdoor gear, and especially jewelry should always be subject to negotiation. Any item purchased from a high-end boutique shop can likely be discounted by the staff. The margin on boutique clothing is extremely high and they have a lot of room to discount especially if you are purchasing multiple items. If they are not willing to discount the clothes themselves, see if they will throw in some cheaper accessories for free. For outdoor gear and appliances ask the staff if they can apply an employee discount or if there are any discounts available.

Jewelry warrants its own section here because of how high the gross margins tend to be.

• Strongly consider artificial diamonds. The arrival of technology that allows for the production of cheaper artificial diamonds is rapidly reducing their costs. Industrial scale economics and Chinese supply growth is likely to continue pushing diamond prices down. There is now a significant price difference between natural and artificial diamond with the latter being far cheaper. Even relatively trained jewelers cannot easily tell the difference and no one looking with their naked eye will be able to tell the difference. Also unlike mining a diamond, no one is injured and there are no questions about the diamond funding a conflict.
• Sales taxes matter. A high single digit sales tax on a high price item can cost a lot. If you can try to buy in a no or lower tax jurisdiction. Some sketchier jewelers may also avoid the sales tax by shipping it to an out of state address. I do not condone this behavior, but it is done.
• Cash is king. A non-scientific poll of the two jewelers I have known tells me what is obvious to anyone, jewelers don’t like paying income taxes anymore than anyone else. Paying in cash will likely get you a 5%+ discount because the jeweler saves on credit card fees, but more importantly the jeweler is likely to pay almost no income tax on the transaction as unbeknownst to you, your sale will magically be recorded at a much lower price in their point of sale. This strategy only works for boutiques, chains like Tiffanys are obviously upstanding corporate citizens that have much more advanced tax avoidance strategies.

Services with high margins

Any service that has a low or zero marginal cost has significant room to discount. Hotels are a classic example. The cost of occupying an otherwise empty room is near zero (not zero because of housekeeping, daily food etc). Similarly, software or online subscriptions have a near zero cost of an additional user. 

• Ask for a discount or an upgrade. For hotels, software, and services from smaller online vendors always ask for a discount or an upgrade. Ask the hotel’s front desk if they have any available upgrades. For smaller software vendors, ask if they can give you the next tier of service or can add a few months of free trial so you can get to know the product.
• Get a bonus for referrals. Instead of simply referring your lawyer, realtor, wealth manager, or consultant to a friend for nothing, ask them for a referral agreement where you get 5-20% of the fees they get from the referral. They are highly likely to give you one as it is a really cheap way of building business.
• Payment terms matter. High-end service providers such as lawyers and consultants are often getting stiffed and paid late by their clients. As a result, you can likely trade quick payment terms such as net 10 (payment within 10 days of invoice) for at least a few percentage point discount.

Resold goods and antiques

When you buy a resold item online from Facebook Marketplace, Craigslist, or another forum you should always negotiate. Unless the price is already extremely cheap, which can be a flag in its own right, you should always ask for less than the listing price. There is already a built in expectation in online marketplace sales that the price people are offering will be discounted 20-50%.

• Timing matters. Buying anything online that requires an in-person meetup is a huge pain in the butt. People don’t show up, try to renegotiate terms on spurious grounds, and show up with tiny cars to pick up large objects (happened to me 3 times). To avoid this headache, offer a firm price if you can pick up within the next short period of time. Sometimes it won’t fit their schedule, but other times the seller will appreciate the certainty of getting the sale done quickly.
• Cash is king. For the same reasons discussed above, resellers/antique dealers prefer to deal in cash. In addition to taxes, using cash avoids auction or marketplace fees that can be 15% or greater of the sales price.
• Bundle for discounts. If you are buying more than one item, ask for a bulk discount.