Negotiation technique under the spotlight: ‘Funny Money’

Templar Advisors’ clients spend significant time negotiating with varied counterparties, both internally and externally.  Strong negotiation skills are essential in the workplace. Bankers rely on them when negotiating fees with clients. Private equity shareholders need to harness these skills during complex refinancings, or during acquisition or exit processes. Equally, professionals in the Corporate Functions need them to secure resources or budget. In this piece, Templar Advisors highlights the importance of framing and positioning – subtle but often overlooked methods to improve negotiation outcomes.

‘Funny Money’ is a negotiation tactic that involves reframing costs, values, or financial figures in a way that either makes them seem either smaller and more palatable; or, conversely, larger and more significant to the counterparty – depending on your intent.  This is rooted in the psychological principle that people react differently depending on how information appears to them.  By breaking large sums into smaller, more manageable elements or by converting numeric costs into more relatable terms, negotiators can minimize the perceived financial impact on the other party.

This technique leverages cognitive bias—specifically, how people perceive numbers and money—so they might focus less on the total amount and more on incremental or alternative values.  Whether you are looking to frame a small discount as a large amount – “We’re discounting the fee by 250 basis points”, versus “we’re giving you a 2.5% discount”, or making large sums appear small, the aim is to reduce objections, facilitate agreement, and make deals more acceptable.

How People Employ ‘Funny Money’ in Practice:

1. By reframing a large cost into smaller units and vice-versa (for example daily, weekly, or per-use amounts over an aggregated lump-sum).
2. By highlighting value over cost by shifting focus to long-term benefits or returns.
3. By using analogies or comparisons to make costs relatable.

Examples of ‘Funny Money’ in Negotiations

1. ‘Chunking Down’ the Cost

• Scenario: A solar energy company (Sunny Co) is pitching an investment to the owner of a data centre. The upfront cost for installing panels on the data centre roof is £500,000.
• “Funny Money” Approach: “For a one-off investment of £500,000 today, you’ll have decades of free, clean energy, saving far more than that in energy costs.  The headline installation cost is the equivalent of £1,370 per day over this first year. Then it’s all done!”
  • This reframes the total figure into a daily cost, making it feel more manageable.

2. Cost vs. Value Perception

• Scenario: A bank is advising an infrastructure client on a $500 million M&A deal.
• Funny Money Approach: “While $500 million would be the largest deal you’ve done to date, the economics of the transaction are compelling.  This acquisition unlocks $2.5 billion in projected contracted revenue over the next five years.  So, we’ll be paying 20 cents for every dollar of new, high-quality revenue generated.”
  • This shifts the focus from the upfront price to the return on investment.

3. Atypical or unexpected increments of value

• Scenario: A software provider is negotiating a £20,000 yearly subscription fee with a client and the client wants a discount.  Rather than offering round numbers (5% or 10%), the software vendor discounts in unorthodox increments.
• ‘Funny Money’ Approach: “We really don’t discount, but I’ve spoken to my CEO and we can reduce the subscription by 3.48% for this year.  I turn, we’ll need a deposit of £4,570.  You can pay the residual amount via monthly payments.”
  • By using anomalous figures and avoiding round numbers, the negotiating counterparty is cognitively a little off-balance and less focused on driving what they perceive to be the hardest bargain.

4. Comparing to Relatable Expenses

• Scenario: A Wealth Manager is talking to Intermediaries about the fee schedule that comes with a new strategy.  It will cost of $2,000 annually.
• Funny Money Approach: “For less than the price of a daily Cappuccino — this strategy will set your clients on clearer paths to more diversified and better risk-managed investments.”
  • Framing the cost in terms of small, everyday purchases minimizes resistance.
    

When to Use “Funny Money”

• When dealing with large, intimidating costs or investments.
• When trying to demonstrate the value proposition of a product or strategy.
• When you feel that price sensitivity may create a cognitive distraction during a negotiation.

By reframing financial figures using “funny money,” negotiators can reduce resistance and make their proposition appear more attractive. It’s a subtle, effective way to shift the conversation from cost to value.