How – And Why – To Negotiate

How – And Why – To Negotiate was originally published on 81cents.

You’ve just finished a long job search. You wrote and rewrote your resume, went through rounds of interviews, and, finally, you got an offer!

However, there’s one more important step to consider before you finish your job search – and it’s one that’s not commonly taught in school. Understanding if you’re being paid fairly and (often) negotiating is an incredibly important part of starting a new role.

While many people think negotiation is just about asking for higher pay, it’s actually a chance to determine what the entire role will be like, and if your employer is setting you up to be successful. For example – if a hiring manager isn’t willing to calmly discuss compensation with you and share how it’s been determined, how can you expect them to give you clarity on the steps required to be promoted within the organization? Or, even more, to advocate on your behalf?

In this article we’ll expand on the importance of negotiating and share our top tips (including the different types of leverage you can use to increase your pay).

Why negotiate?

We often fear negotiating may cause the people we’re negotiating with to view us negatively or that it may yield negative repercussions. These fears are usually unfounded, and often come from lack of experience with negotiations – or from having grown up in environments where we were taught not to talk about money. As long as we’re doing so in a respectful way and making reasonable asks there shouldn’t be any negative consequences.

If we look at the bigger picture, there is actually more risk associated with not negotiating than there is with it! You risk leaving money on the table, you risk agreeing to terms that don’t fit with your lifestyle (ex. remote vs in person work), and you risk not learning how to advocate for yourself.

One of the more long term risks is undervaluing yourself as a candidate at your first job – which can lead to significantly lower earnings over the course of your career.

There are a few main ways this can happen:

1. Not negotiating means you’ll not only earn less this year but you’ll also have less to potentially invest – and less to benefit from compounding.

As an example – let’s say you’re offered a salary of $60,000 and negotiate a $5,000 increase. If you invest that $5,000 just once and it earns 6% annual interest, after 50 years that $5,000 would have increased to $92,000!

2. Other compensation components such as annual or performance bonus, and promotions are usually a percentage of your base salary. For example – a company may have a 15% annual bonus structure. If you negotiate your salary from $50,000 to $60,000 not only will you make $10,000 more in salary, but your bonus will also be higher ($9,000 vs. $7,500). Similarly, at some companies, the 401k match is a percentage of your pay as well.

Negotiating just a $5,000 increase at your first job can actually lead to a $1M difference in lifetime earnings when you take into consideration how investments compound, and how your future pay will also be higher because of higher bonuses and raises, etc.

The graphic below (courtesy of Ramit Sethi’s I Will Teach You To Be Rich) shows what difference negotiating a $5,000 increase in your first year can have 40 years down the line.

1-time salary increase of $5000

Invested and compounded after 40 years: $1,398,905.20!

3. Negotiating early in your career also means that future negotiations will be easier for you, too. Being a better negotiator can lead to a more substantial increase in pay as you get further in your career – since you’ll be earning more. For example – let’s say in your third job after undergrad you’re offered a salary of $95,000. If you’re more confident and comfortable negotiating, it may be much easier for you to ask for a 20% increase than if it’s your first time negotiating. A 20% increase of $95,000 is $19,000!

“Ok – I understand that negotiating is important – but how do I do it?”

Now that we’ve explained the importance of negotiating, it’s time to share how to do it!

Tip #1: Talk less than you want to!

When it comes to negotiating, we’ve usually seen that the person that talks the least is usually in a better position. Whenever you are discussing details outside of the negotiation, you can and should build a relationship with your recruiter, show your enthusiasm, and converse freely. However, when compensation is discussed, we want to avoid rambling and over-explaining, and let the recruiter do most of the talking.

Oftentimes after making a request or after answering a question, there may be a lull in the conversation and we might fill the need to fill it by oversharing or rambling. After making our ask or answering that question, we can just stop talking and let the silence be awkward if it is, because in this case, awkward silences are good!

Tip #2. Think about what information strengthens (or weakens) your position

Only voluntarily share information that improves your situation (ex. if you have interviews for higher levels at other companies), and avoid sharing information that weakens your position (ex. if you have interviews for lower levels at other companies).

Tip #3. Ask lots of questions

Ask your recruiter broader questions and then go deeper using how and why questions. This can help you gather more information to use to inform your negotiation.

Here are a few examples of questions you might want to ask:

  • What is the company’s compensation philosophy? How is compensation determined?
  • Can you share more about the benefits offered in the role outside of salary?
  • How is the bonus calculated?
  • How does this offer compare to others on the team?

Tip #4. Think about your leverage

Leverage is a strategic advantage, or the ability to influence a situation or a person to get the results you want. Fundamentally, negotiating successfully means identifying or creating a form of leverage, and then applying it in a way that is effective with the company you’re negotiating with.

That leverage can come in a few different forms:

– One of the most common ones is a competing offer. Candidates are usually applying and interviewing for multiple opportunities throughout their job search. When you set up interviews with companies on a similar timeline, this creates a sense of competition (especially if these companies frequently lose talent to each other), and enables you to prop these companies up against each other and ideally create a bidding war.

– If you are currently employed full-time, remaining at your current job is in a way, a competing opportunity. This is especially true if you have growth opportunities within your current job, for instance, expecting a promotion in 6 months, or a bonus at the next review.

– Another form of leverage that can be incredibly successful when done right is value-based leverage. Understanding the goals and success metrics for the role and team you will be joining, and outlining the work you will put forward to reach those, and what you will contribute to the team can build a strong foundation to make asks as part of your negotiation that may include an improved compensation package, consideration for a higher level, and working conditions that are better suited to your life (ex. remote work).

A great way to have this conversation is to create a 90-day plan of what you understand the goals are for you to be successful within the position, and have a conversation with your hiring manager on what they see as success. You want to make sure you’re aligned on this vision. You’re effectively showing the company and your hiring manager how you will help solve some of the pain points they’re experiencing, and the idea is that once they see that, they’ll get even more excited about having you on their team and be supportive of your negotiation.

Tip #5. Write a Script

It may sound simple but creating a script for your negotiation is one of the most effective ways to prepare.

It’s a great way to calm your nerves and make sure you’re ready for your negotiation because it forces you to be intentional about the information you do (and don’t) want to share. Here is a guide to help with your scriptwriting — and a few example scripts.

Negotiating can feel overwhelming and nerve-wracking. However, every year we see hundreds of people negotiate successfully – including people who’d never negotiated before! You’ve got this!!

To learn more about negotiating visit our Negotiation Learning Center.

Negotiate Your Offer

By 81cents Staff
81cents Staff