Would you like to be $500,000 richer? If so, keep reading.
Five hundred grand is my estimate of the average benefit of good negotiation skills for a physician. Doctors are not naturally drawn to negotiation. Almost none have any formal training. Not even a single class or workshop.
To enrich yourself by hundreds of thousands of dollars over a career you do not need to become an expert. You just need to know a few concepts and practice them. You can’t skip the practice.
I will run you through the basics here to get you started. This post assumes we are beginning at the beginning and all this is new to you. I will cover more in an “advanced negotiation” post in the future. This post alone will give you all the tools needed to get 80% of the potential benefit.
Negotiation – How Good are You?
Most are not good at negotiating. They also don’t realize their deficit. Without training, most of us aren’t that good at it. Most of us don’t know it or care. How would we know? Why should we care? There are ways to test your current skill level. Negotiation workshops and online courses are great for assessing and improving skills. I learned of my own overconfidence during a hands-on negotiation workshop. If you don’t have that option, it is safe to assume you could do better even if you are decent at it now.
Senior leaders in business who have worked their way up the ranks tend to have well-honed negotiation skills. Some argue that their most important tasks revolve around effective deal-making. Yet, according to a study at the University of Chicago’s business school, 80% of executives and CEOs leave money on the table! When participating in a simulated negotiation, they arrived at a suboptimal deal.
Are you still confident about your superior skills? That study showed even the most experienced could do better. You and I likely could too. Did I convince you yet that there is a gap between where you are and where you could be for optimal financial efficiency? I hope so.
You Can Get Better
Now that I’ve given you bad news, I will share some good news. You can dramatically improve your ability. Negotiation is a learned skill. Like many things in life, some seem naturally drawn to it or good at it. But we can all get better. That has been proven in studies and in my experience. Also, you do not have to become an expert to improve. It won’t take 10,000 hours to develop the skill. Understanding and practicing a few tips can make a huge difference. This is doable for a high-achiever like you.
Most doctors don’t take a lot of convincing when it comes to how much they could save or improve with better negotiation skills. They also believe they can improve. So why don’t they? Here are a few of the “reasons” I hear.
“I don’t have enough time.”
It doesn’t necessarily take more time to ask for a discount. If you get 50% off something that you are paying for (as I did yesterday on a service I signed up for) then you will spend much less. Obvious, right? Yes, that might have taken a few minutes. In my example, it was via e-mail and took me two minutes. Well, what about all the time? I saved $1,700 in those two minutes. What is that pay rate? Not too mention that is work I don’t have to do at the office to earn it, pay income tax, etc. Strategic negotiating can save time, not take time.
We should be embarrassed by our reputation as “suckers” in the financial services industry. Doesn’t it make you mad to know people are taking advantage of you? They know you want to be “nice” at all times and not ask too many questions. They know you have a high income and they want their fair share of it. That’s embarrassing to comply with.
“I don’t feel comfortable.”
Do you remember cramming for that biochemistry exam when your friends were going out? Or that 24-hour shift at the hospital? Or that Saturday morning workout when you wanted to sleep in? Were they “uncomfortable?” Heck yes! We can become comfortable with being uncomfortable. We need to allow discomfort to enjoy some of the best things in life and to live up to our full potential. Besides -as with running or public speaking- you will get more comfortable with it with routine practice.
“I don’t like conflict or disagreement.”
There is a spectrum on this trait. In my residency program, they lined us up (at a retreat) based on our enjoyment of conflict. We had the whole range covered. I was near the “avoid conflict” end. We had one resident who loved conflict so much that he wanted to argue with anyone who didn’t believe him when he said he enjoys conflict! Nevertheless, we can become more accustomed to it over time. As physicians, we have dealt with more stressful conflicts with patients, family members, staff, etc. Avoiding conflict won’t help you achieve your long-term goals.
“It is not professional”
It isn’t unprofessional to get an optimal deal. Most other successful professionals see getting a good deal as part of their job or even a moral obligation. Resources are scarce. We should use them wisely and be good stewards of our money. Keeping your family or business financially secure isn’t “unprofessional” in any way. Perhaps the opposite. At any rate, if we attack the problem (e.g. price, salary, terms, benefits, etc.) rather than the person (patient, client, payer, boss, etc.) we can negotiate aggressively but in a professional manner. No offense will be taken. Most of the time they would only be shocked if we didn’t try to negotiate better terms.
Because the lifetime consequences are huge!
It is no secret that doctors in the U.S. make a generous income. They are also involved in spending decisions in their household and workplace. An expert negotiator may save 30% or more routinely and much more on big-ticket items.
But what if you are just a little bit better than where you are now? Maybe you just start looking for deals and asking for discounts? I’m talking about little things like checking online compensation surveys periodically, booking vacations early, buying discount furniture with cash, using apps like RetailMeNot for coupon codes for online orders, and consolidating your insurance policies with one company.
Could you save 5% or 10% on a lot of services or things you buy? I bet you could and with minimal time or effort. We don’t because we think the percentage is so small that it doesn’t matter. But it does matter.
For example, a doctor (specialist, but not at the highest salary level) who works an average career length and runs a private practice may be involved in transactions as shown in the table.
The first shocking point here is that the doctor has at least some level of decision making around transactions totaling $8.5M. That’s a serious chunk of change by any measure. Is it really an option to not negotiate any of that? What would be the benefit of improving some with those numbers?
What if you could save just 6%? I think that would be easy. Just asking for a discount, making a couple comparisons, timing your purchases during lower price fluctuations could get you there. Boom: half a million bucks!
What about 9%? Performing at this level consistently would require more training, work, and practice. But if you have the time and enjoy it, why not go for it? The payoff? $770K or over three-quarters of a million dollars!
Are you now motivated to learn more? If so, read on:
Negotiation Building Blocks
This a skill. Practice is required to get better. The good news is there are opportunities for practice every day. Just be aware and go for it. Let’s say your daughter wants to stay up later on a school night. Your employer proposed a new bonus structure. Your spouse asked you to buy something? A lawyer asks you about your medico-legal consulting fees? These are all great practice opportunities. You don’t have to go to a retreat and practice in a simulated business situation.
How you can you expand the pie? Don’t think of this as a zero-sum game. What you gain doesn’t have to take from someone else. Think of building synergies, adding value, creating new business or investment options.
After the pie is expanded, take your piece. It will be bigger than if you took your piece before expanding the size of the pie. Not skipping the “create value” step helps you but also helps every other involved party. The fixed-pie mentality is hard to break. Some will never get it and will always be paranoid that you are out to “eat their lunch” as I have been accused of.
All deals go better if there is a baseline of trust. Without trust, we end up being too guarded to relax. If we aren’t relaxed, we can’t think creatively about expanding value. We would be too focused on protecting and defending rather than building.
Applied Behavioral Economics
Feel free to dig into the economics and psychology literature to better understand why all this works. But it isn’t required. Just know these tips are solidly based on empirical research from multiple fields. More importantly, they are practical and immediately useful. This stuff works whether you understand why it works or not. The proof is in the pudding.
If all this is new to you and you want to learn more, there is no better place to start than at the top – Harvard. More specifically, any work that came out of the Harvard Negotiation Project. Two of their leaders wrote a best-selling book that is very accessible. It is brief and clearly written and I highly recommend it. It is Roger Fisher & William Ury’s Getting to YES.
My paperback copy has yellow, dog-eared pages and is dated 1983. It laid out for the first time the useful concepts of good negotiation and good business relationship-building. They emphasized principle-based negotiation and avoiding positional bargaining. We often get caught up in a specific desired outcome. That can work to our detriment. We may be so focused on that one aspect or outcome that we inadvertently pass over better opportunities. Fisher and Ury remind us to not lock onto a specific outcome at the beginning of a negotiation.
Getting to Yes
For those who don’t want to read a book about this (even an easy 150-page one like Getting to Yes), I will summarize the authors’ key points. I made a mnemonic to remember the four keys. It isn’t a very good mnemonic, but sometimes you get what you pay for. Here it is: P.O.I.C. I don’t even know why I remember that, but it works for me so I’m sharing it.
1. Separate the People from the Problem
This means when the VP of orthopedics reveals a new incentive bonus structure for your department, don’t lash out at her. It isn’t her fault. Focus on the problem and what that means to you.
2. Invent Options for Mutual Gain
Here are where creative minds can flourish in an otherwise rigid business meeting. Brainstorm. What else could be done? What has been done elsewhere? How could we all work more together in the future to build something great for all of us? For value-based negotiation, re-think well-worn behavioral patterns. Think of this in terms of enlightened self-interest. Yes, you want to benefit, but how could they benefit too?
3. Focus on Interests, not Positions
This is to get us away from positional bargaining. They might not be able to budge much more on salary, but maybe they could offer more vacation time or paid CME. That would satisfy your interest of a balanced, enjoyable life without having to stick to a fixed position of “go” or “no-go” based on only salary.
4. Insist on Objective Criteria
This one is the most critical for physicians in my opinion. We tend to want to share our experience and use logic to persuade. Therefore, many doctors conflict with administrators. Neither side understands the other. If we want more equipment we discuss the patient benefit. When wanting a higher salary, we stress our training, education, and years of sacrifice. None of that is relevant or persuasive to business people.
Instead, show data on how companies with that equipment captured more market-share, had higher reimbursement rates, etc. Before salary negotiations research all available external, objective databases. Examples include Medscape, Salary.com, PayScale.com, your specialty society, MGMA, recruiters, and AMGA. Know the percentiles in your region and in your specialty for wRVU productivity, billing, compensation, etc. Your employer needs to stay competitive with the marketplace and only objective data will be helpful.
Importance of BATNA
Know your BATNA
BATNA stands for Best Alternative to Negotiated Agreement. This term (pronounced bat’-nuh) is powerful. Most of us have a vague understanding of it and consider it when exploring options. Being crystal clear about what it means for you is critical. Knowing your BATNA means you know exactly what would happen to you if this deal completely and permanently falls apart. If you didn’t take this job, what other specific definite job offers do you have right now?
Strengthen your BATNA
It isn’t enough to just know what your BATNA is. You must improve it. The ‘stronger’ your alternative options, the better your negotiating leverage. If your walkaway alternative is good or acceptable to you, you can be more relaxed. You have a floor that you could live with. That gives you the courage to shoot a little higher in your expectations. Why not ask for more since you have a great fallback plan?
Those without many good other options will be bargaining from a position of weakness and are unlikely to capture all the available value. Note the BATNA isn’t just an idea like “Well, I’m sure I could get another good job soon.” It must be, “I already have an offer from Acme Medical Group with a starting salary of $225K plus bonuses.” The more options, the better. Options are Key
Home buyers who fall in love with one house don’t do so well on pricing as those who are considering multiple housing options. The more viable options, the better.
A key source of your negotiating power is your ability to walk away. Never forget the importance of an excellent BATNA. Normally we should keep our BATNA to ourselves. Especially early in the negotiation since that is a floor, not a ceiling. But if things aren’t going well, revealing your BATNA (e.g. showing them the offer-letter from their competitor) may jumpstart the discussion to a new level.
Also, consider what their BATNA may be. How good is it likely to be? Are there a lot of potential applicants with skills like yours? If so their BATNA may be strong and they would be more willing to let you walk away.
Final Negotiation Tips
You now have an excellent knowledge base of useful negotiating tactics. Let’s build on those new tools.
If you are not prepared, don’t go. Find out all you can about the company, its culture, its history, and track record. Have they employed someone like you? Is there a company precedent for the kind of deal you want? Who can you talk to that would have the true inside scoop on what is going on? What is their BATNA? What data and objective criteria will you bring to the table?
Avoid Sequential Bargaining
Try not to go from one aspect to another. Make multiple offers simultaneously. Create a portfolio of acceptable options. If you start with salary and talk only about that you may get stuck and miss out on a more optimal array of benefits, time off, partnership buy-in, CME funds, loan repayment, etc.
Set high aspirations. Be realistic yet optimistic. Realize that whoever brings out a number first anchors the discussion. The final agreement will end up closer to the anchor than it would if the anchor wasn’t thrown in. Beware of its effects. If someone throws out an absurd starting offer realize what they are doing. Ignore it and propose your own extreme anchor. Don’t use theirs as the starting point.
Don’t make unilateral concessions. Offer one when you must and then be quiet. Wait for them to make a concession. The impatient or those who can’t tolerate silence often continue to make repeated concessions and get nothing in return. If the other party is experienced, they will be more than happy to quietly watch you give away the farm for no reason. Also, watch the magnitude of your concessions. Large changes signal there is still a long way to go. As the concessions get progressively smaller that signals you are reaching your ultimate final offer. You can intentionally use such signals to your advantage and most experienced negotiators do just that.
Combine Competition and Collaboration
Most deals are not a “one and done” deal. Consider the relationship. You may not want to bargain hard on every point to grab every possible dime from the deal if that would sour an important relationship going forward. How can you compete and use that competition to raise your industry standards? Competition can be a stimulating force to raise your game. You will garner the respect of your adversary through honest improvement and better service. Who knows you may formally work together in the future. We are seeing a lot of competitive cooperation “co-opetition” among physician personal finance bloggers these days. It seems to be working well to spread our message and make us all better.
What do you think? Have you found negotiating skills to be helpful and important? Have you ever tried to up your game with better deal making? Any other tips for the basic negotiators among us?