by Steve Pavlina, founder of Dexterity Software. Reproduced with permission.
Many independent developers eventually find themselves in a situation where they must negotiate a contract for the first time, such as for a publishing deal. And many developers are taken advantage of on their first deal because of a lack of basic negotiating skills. This article will attempt to give you a general understanding of how to negotiate a fair deal.
The first thing you must learn are the three variables of negotiation: time, information, and power. You can remember these easily with the acronym "TIP," so the next time you have to negotiate an agreement, you’ll remember the "TIP" to think in terms of time, information, and power.
The rule of time is that whoever has the loosest time constraints has an advantage in any negotiating situation. This means that if a publisher comes to you, and they say they need your product for Christmas, you know that they have a deadline, and this gives you an advantage. Whenever possible, always find out if the other party has a specific time frame or deadline in mind. The party with the tighter time constraints will often make concessions at the last minute in order to make their deadline. In fact, the best concessions are generally made shortly after the deadline has passed. Deadlines can often slide by a few days, and as soon as the first deadline passes, it tends to make people more flexible if they still want the deal to go through.
Time is also a factor if you only have a limited amount of time to use for negotiating. If you fly out to meet with someone to negotiate a deal, and they know when you have to catch your return flight, they may attempt to stall and run down the clock in the beginning, leaving the biggest issues to the last minute when you are forced to make concessions. You are always at a disadvantage when you are forced into a set period of time in which you must reach an agreement. Avoid this situation whenever possible. You can negotiate most effectively when the other party perceives that you have all the time in the world. Incidentally, a relatively high percentage of deals are finalized on Fridays. There is a perceived time pressure to get things wrapped up by Friday so everyone can enjoy the weekend with the certainly of knowing that the deal is done.
The rule of information is that whichever party has the best information has an advantage. Find out as much as possible about the other party, especially how your deal would fit into their overall situation. If they’re a public company, get a copy of their annual report, and find out how their stock is doing. Read their press releases, visit their web site, and learn as much as possible about them. The more pertinent information you have, the better. This is one case where the small independent developer has the advantage, since it’s often easy to find information on a large company and tough to find out as much about a small one.
For instance, if a publisher approaches you, find out what other products they’ve published, and track down and contact the developers. Find out what those developers thought of working with this publisher. Ask the publisher for references, and if they refuse to provide any, be aware that this is a big red flag if they’ve already published several games.
I recently received a offer from an unfamiliar publisher. I visited their web site, found a list of developers whose products they published, and sent a short email to each developer. Most responded, and what I learned was very specific and very negative. I turned down this publisher rather quickly after that. Sometimes the right information can tell you that a deal is not worth entering.
Do your homework. If you are negotiating with your boss for a raise, then having information about salaries can be helpful. If you are underpaid relative to industry standards, pointing this out to your boss when asking for a raise can give you a great deal of leverage. If a publisher offers you a deal, try to find out if their royalty rate and advance offers are competitive. If the figures are below industry standards, then pointing this out to the publisher can help you create some pressure to get a better offer. To the degree that you lack vital information, you are at a disadvantage when negotiating. Internet newsgroups and forums are great resources for learning such information. Having a good attorney will also give you an information advantage, especially if the attorney has done many similar deals in the past. If you’re not sure whether you need an attorney or not, then you definitely need one.
The rule of power is that whichever party has the greatest perceived power has an advantage. Power is the wildcard in any negotiation. Power refers to the ability of the one party to create leverage over the other. For instance, you may be at a disadvantage when negotiating with your boss, since s/he may have the power to fire you or promote you. However, if you are an indispensable employee that the company needs to survive, then you have a great deal of power. Note that this is perceived power, meaning that it only works if the other party perceives its presence. Toddlers are the best negotiators in the world, since they have the ability to scream their lungs out in public; this doesn’t concern the toddler, but it will create instant leverage in any parent.
Your attitude towards a particular deal can make a big difference in your level of power. If you need a deal in order to pay your bills, and the other party knows this, then you are at a serious disadvantage. If you don’t need a deal at all, but the other party is in a desperate situation, then you have an advantage. In any publishing deal, it will help if the other party perceives that you don’t need the deal, even if you do. It help raises your level of power in the eyes of the other party. As soon as you reach the point where you decide the deal must happen, you lose a great deal of power and will likely make many unwanted concessions at the last minute. Treat every deal like a bonus that you can take or leave with impunity. Until the contract is signed, always be mentally open to the possibility that you won’t reach an agreement.
The three variables of time, information, and power will help you get an idea of how much leverage you’ll have in any negotiation. The hungry person isn’t going to get a good deal when negotiating for food, nor will the person who doesn’t know what food is supposed to cost, nor will the person who has only one source for food.
Having negotiated a variety of deals myself, I am convinced that it’s in everyone’s best interest that both parties be committed to a win-win deal. In my experience the only deals that stick are those that are win-win. Deals that turn out lopsided tend to fall apart somewhere down the line or end up in lawsuits and badly burned bridges. Whenever you negotiate, think of solutions that will satisfy both sides’ needs, not just your own. Whenever a publisher sends me a contract that is massively in their favor, I know instantly that I’m dealing with a win-lose negotiator. I’ve never entered a good deal when the initial agreement started out very lopsided. A fair publisher will generally start with a fair agreement. If you find that you’re shaking your head at every paragraph, it’s probably best to walk away. It will save you a lot of time in the long run. More than once I’ve sent the first contract back and asked for a real contract. If the publisher plays dumb after that, I know they’re looking for suckers, so it’s time to walk away.
Before starting any negotiation, decide what are your "must have" terms, "nice to have" terms, and "must not have" terms. For instance, perhaps you decide that you want to get 20% royalties, that 10-15% would be acceptable, and that less than 10% would be unacceptable. If you decide this in advance, you will be able to prevent yourself from making unwanted concessions that you later find unacceptable.
Never sign a contract that doesn’t accurately reflect what you’ve verbally agreed to. Sometimes a publisher will tell you one thing and then send you a contract that says something entirely differently. When questioned, they may give the excuse, "that’s just our standard agreement; everyone signs it." Then they’ll go on to say how it’s too much trouble to change the written contract. Don’t buy it. Once you sign the contract, your deal is what’s in writing and only what’s in writing. Even with the best of intentions, people can leave companies, and then their replacements will have only the written agreement to go on. This has happened to me more than once. If you don’t get it down on paper, it’s as if it didn’t exist.
If you make an offer, and the other party refuses, always wait for a counteroffer. Never say, "$5000? No? Ok, how about $4000?" It’s impossible to win when you bid against yourself, but I see this happen all the time. One publisher recently offered me a $5000 advance for a publishing deal. I told them that $5000 seemed a bit low. So they came back and offered $10,000. What if $7500 had been acceptable to me? I knew immediately that I was dealing with a very bad negotiator. They should have asked me for a counter-offer. I might have said $10,000, and we might have settled at $8000. Instead, the publisher has already pushed it up to $10,000 on their own, so if they’re done negotiating against themselves at that point, I can counter-offer with $15,000 or even $20,000, and we end up settling on a nice five-figure advance. I have to say I really love it when people do this. Whenever you are turned down, always wait to get a counteroffer first. A corollary to this rule is that you should always attempt to get the other party to name a figure first whenever numbers are concerned.
Well, almost everything. Consider your first offer in any deal to be just a starting point for negotiations. I have never signed a publishing deal as it was first presented, no matter how much I wanted it. There are always changes to be made because in every relationship, the parties have slightly different needs to be addressed. If the other party is absolutely inflexible on a particular issue, then look for other areas where they can be flexible. If you can’t get a higher royalty rate, for instance, then ask for a higher advance, or try to get a minimum monthly guarantee. If the deal doesn’t seem fair to you, and the other party is inflexible on everything, then most likely they are looking for a win-lose deal, so you’re probably best off just walking away. You can generally tell you’re dealing with a fair negotiator if s/he takes a genuine interest in addressing and meeting the needs of both parties, not just his/her own. The goal of a fair negotiator is to solve all the problems that stand in the way of closing the deal, such that both parties can be winners.
Realize and accept that not every deal is worth having. In my experience most publishing deals in particular aren’t worth entering. If you wish to learn more about the subject of negotiating, I recommend the books You Can Negotiate Anything and Negotiate This! by Herb Cohen and Secrets of Power Negotiating by Roger Dawson.