Contract negotiation is both an art and a science. Whether you're negotiating a commercial lease, a service agreement, or an employment contract, effective negotiation skills can save you money, reduce risk, and create better business relationships. Here are proven strategies for negotiating better contracts.
Preparation is the foundation of successful negotiation. Before entering any negotiation, thoroughly understand the contract you're negotiating, research market standards and comparable deals, identify your must-haves versus nice-to-haves, understand the other party's likely priorities and constraints, and determine your BATNA (Best Alternative To a Negotiated Agreement). The party with more information and better preparation almost always achieves better outcomes.
Focus on interests, not positions. Instead of arguing over specific numbers or terms, try to understand why the other party wants what they want. For example, if a landlord insists on a personal guarantee, their interest is financial security—you might satisfy that interest with a larger security deposit or letter of credit instead. Finding creative solutions that address both parties' underlying interests leads to better agreements.
Prioritize your negotiation points. Not every clause deserves equal attention. Focus your negotiation energy on the provisions that have the greatest financial impact or risk: liability and indemnification caps, termination rights and penalties, intellectual property ownership, non-compete restrictions, and payment terms. Be willing to concede on less important points to gain ground on critical ones.
Use objective criteria to support your positions. Market data, industry benchmarks, published rate surveys, and precedent from comparable deals are more persuasive than subjective arguments. When you can show that your proposed terms are standard in the industry, the other party is more likely to accept them.
Understand the power dynamics but don't be intimidated by them. Even when negotiating with a larger or more established party, you have leverage if they want to do business with you. Common sources of leverage include being the preferred choice among competitors, bringing unique value or expertise, having strong alternatives if the deal falls through, and being willing to walk away.
Get everything in writing. Verbal agreements and handshake deals lead to misunderstandings. Every negotiated change should be reflected in the written contract. When reviewing the final agreement, check that it accurately reflects all negotiated terms and that no provisions were changed or added without discussion.
Know when to involve a lawyer. For high-value contracts, complex agreements, or deals involving significant risk, legal counsel is a wise investment. An experienced attorney can identify risks you might miss, suggest alternative approaches, and ensure the final agreement protects your interests. The cost of legal review is almost always less than the cost of a bad contract.
