Thursday, May 14, 2020

How Strong Is Your Bargaining Power?

That’s an important question to ask in your career. Why? Because the stronger your bargaining power is, the higher the price you can ask for your skills. On the other hand, if your bargaining power is weak then you risk being undervalued by the market. You might get paid less than you deserve.

There is a scene in a recent episode of The Apprentice UK (one of just a handful of TV shows I watch, by the way) that clearly describes this principle. The teams were given two vans full of fishes each and they had to sell all of them before 7 p.m. One team, being very close to the deadline, desperately needed to sell all the fishes that were left. They went to a law office and tried to sell the fishes there. The price negotiation between the team and the potential buyer was interesting. It went something like this (I don’t remember the exact numbers so these are approximations): 

Team: 130 pounds  Buyer: 50 pounds
Team: 100 pounds  Buyer: 50 pounds
Team: 75 pounds  Buyer: 50 pounds
Team: 55 pounds  Buyer: 50 pounds
Final price: 50 pounds

Do you see how unbalanced the negotiation process was? The team reduced their asking price significantly over time but the buyer never increased theirs, not even by one pound.

Why did it happen? Because the buyer’s bargaining power was way stronger than the team’s. The team had no choice but to sell the fishes. The buyer, on the other hand, didn’t need the fishes. That’s why the buyer won the negotiation without conceding even one pound.

I learn one important lesson here:
To be valued by the market, you need to have strong bargaining power.

Here are some ways to increase your bargaining power:
1. Increase your intrinsic value
This goes without saying. Your intrinsic value has a big effect on your bargaining power. Your intrinsic value depends on your personal quality such as your skills, knowledge, and attitude. To increase it, you need to constantly improve yourself.

2. Avoid desperate situation
A homeowner who needs money fast is much more likely to sell her property for less than its real value. She desperately needs the money so she doesn’t have the time to wait for a better offer. Just like the case with The Apprentice’s team above, the buyer can make a ridiculous offer and still win the negotiation.
So you need to avoid being in a desperate situation. Have a cushion. Save money and build an emergency fund so that you have time to find a good offer.

3. Have options
The more options you have, the more you can prevent yourself from being undervalued. If you don’t have options, you have no choice but to take whatever offer you get no matter how bad it is. In career, getting offers from more than one companies increases your bargaining power. So does having alternative income streams.

Here are three ways to have more options:
Build your network 
You can get information about available opportunities through your network. The stronger your network is, the more opportunities you can potentially get. These 106 tips to build your network might be helpful.

Start a side business 
It’s not easy to build a side business while you are still having a day job, but you can start slowly. Allocate time in the evening or weekend to work on your business. Over time, it could become a strong source of income. It takes time to build a business so the earlier you start, the better.

Develop skills in related fields 
If you are a web developer, you may want to learn about web design. If you are a writer, you may want to learn about blogging. This way you have more options in your career because you aren’t limited to just one field. Project-based learning is a good way to develop your skills.

Once you increase your bargaining power, don’t let yourself be undervalued. Ask for what you are worth.
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