How big is big?

Question from a reader: A big company wants to sell my flagship product under private label.  How can I be certain that I'm getting a fair deal?

Short answer - you probably can't.  But - it doesn't have to be a fair deal to be a good deal.  That is a useful distinction that is often overlooked.

I'm reminded of the good old story of Steve and Charlie haggling over the price of a fish.  (I love good old stories.)  "I'll give you $5", said Charlie.  "Not a penny less than $9," replied Steve.  "$6," said Charlie.  "$8," Steve replied.  And, of course, they settled on $7.  As they parted Charlie called out, "Ha, I would have paid $10."  Not to be outdone, Steve's response was, "Ha, yourself.  I would have let it go for $3."

So, how hungry was Charlie?  How badly did Steve need fast money?  How much pride was at stake?  Was it Steve's first sale of the day or his last?  Was the fish really fresh?  Aaagh.  In the face of so much uncertainty, how can we ever define fair?

Only one thing is totally clear from the story.  Once Charlie offered to pay $5, the price was never going lower.  If Steve had spoken first and offered to sell at $5, the price would never have gone higher.

The various surrounding circumstances are not clear in the fish story; but in your own story you have the opportunity, in fact a personal obligation, to ferret out as much information as possible about the marketplace and your prospective customer.  Why, for instance, the big company wants your product is a key determinant of deal goodness to them.  They may be adding it for strategic positioning, rather than for the direct profit it might generate.  If so, they will likely pay a premium.

The same logic holds on your side of the transaction.  If you're doing fine without the proposed deal, you are in a position to hold out for a higher price.  But if that drives the big guy to do a similar deal with your chief competitor, you might be in serious trouble later.  Hmmm.

It's easy to say that it's all about the money.  But others say that timing is everything.  Etc.  Etc.  And so on.

You may never know whether a deal is fair.  But there are plenty of ways to make reasonably certain that the deal is good, at least for you and your business.

I recommend Jim Camp's book on negotiating - Start with No.  Go to the web, or to a bookstore.  Look it over.  If it's a good deal, buy it, whether it's a fair deal or not.

NOTE:  If you have a question, just email it to me, Jim Flowers, jimflowers@startwithmoxie.com.