Who Goes First?

We had $20 million to spend, but the seller hadn’t named the price.

So what should we do? Tell the seller our offer? Or wait and see what price the seller proposed, which might be less than $20 million?

Buyers and sellers often face this conundrum: When the time comes to name a price, who goes first?

Research shows that whoever throws out the first number sets the “anchor,” and the ultimate price agreed upon will be influenced by that anchor. But buyers worry about that anchor being higher than what the seller would have sold for (“What if I offer to pay $100 when he was hoping to get $75?”). And sellers don’t want to set a price that is lower than what the buyer would have paid (“What if I say the price is $75 when she was ready to pay $100?”).

Reflecting back on all the deals I have worked on, I can say with confidence… that I still don’t have the answer.

Sorry.

Like a lot of questions in business, the answer is “it depends.”

In my own case, I advocated for us stating the price first. We were trying to license a proprietary software package. The seller had never licensed its software before, so they really had no idea what to charge us. I knew we had $20 million in the budget, and this software was critical to us winning a $250 million outsourcing deal. The team decided to wait and hear what the seller proposed as the software licensing fee. Maybe the seller would only ask for $10 million, they said, and we would save $10 million!

The seller came back with their proposed price: $57 million. Game over.

Would it have gone differently if we put our offer on the table first? Maybe, maybe not. The seller might have rejected our offer out of hand, or maybe countered with something a little higher. If we left ourselves some room, we could have gotten the license within our budget.

What I can say with confidence is that there really are implications about naming your price first. The problem is you may never know if it was the right decision.