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What follows is some sales advice about asking for special discounts from your sales manager for that prospect with lots of potential.

The not so effective request:

Salesperson to Sales Manager: “I have this great prospect who is going to yield us tons of future business if we can just get the first order. To be competitive they said we’ll have to discount our normal price by 38%.”
Sales Manager to Salesperson: “That’s below our cost! What do you know about them?”
Salesperson to Sales Manager: “All I know is that they need the stuff really badly and they promised us lots of future business. Oh, about our costs, they want 10,000 so we’ll cover the loss with volume. I know how to sell this prospect.”
Sales Manager to Salesperson: ???

The productive request:

Salesperson to Sales Manager: “The XYZ Company says they will buy from us if we can come off our price by 38%. Here is what I know about the decision makers, budget, competition and account potential [realistic and well prepared information provided here]. This is how I plan to demonstrate our added value in order to increase our odds of getting future higher margin business [more good information]. A realistic price quote would be 20% off our normal price. I need your approval for that discount.
Sales Manager to Salesperson: “Approved!”

When you go to your sales manager with reasonable and researched requests you’re much more likely to get a thumbs up. It will also allow you to show off your sales skills and a make for a happier sales manager. Your fellow sales pro’s are frequently going to your sales manager with a continuing chorus of “I need a big discount to get into this prospect that has tremendous future potential.” When asking for a big discount on a prospect, the sales manager needs to feel reasonably confident that the prospect will actually buy in the future and at higher margins. The key is information.

To receive this blog by email <click here> to receive by RSS <click here>. © 2008 Scott R. Sheaffer

I walk into a prospect’s office with a new salesperson named Zack (not his real name).

We have the obligatory first-meeting conversation with the prospect.

Out of the blue the prospect holds up a part and says, “How much do you guys get for this?” Will Zack remember the sales advice I’ve given him about these situations? Zack immediately dives for his catalog and finds the price. “$375.00 each.” The prospect looks unimpressed and says, “Too high. I can get those all day long for much less. Thanks for coming by.” [Sound of door closing behind us]

When we get out to Zack’s car I ask him what he thought of the call. Zack is a smart guy and he knew where he blew it. We reviewed the following basic sales tips when a price question is unexpectedly thrown in our face.

Fundamental sales skills tell us to never quote a price when you’re not prepared. Never quote under duress. Hold off quoting until you get more information and can educate the customer on your added value.

When you get blind sided with a price request and you throw out a price, you’ve eliminated the chance to sell your added value. Remember, you justify your pricing by telling the customer all the additional things you and your company can do for them besides shipping them a product. An ISA study found that 74% of buyers would buy at a higher cost if they better understood the added value a vendor brings.

Always be sure to ask how many the customer needs and when they need them as part of your information gathering. If you have them in stock and they need them quickly you gain some pricing control. If they say they don’t need any at this time, then you know they’re just price checking and you should ignore the request (see Customer Price Sensitivity).

What are the two most important things to remember when you’re hit unexpectedly with a price request and forget how to sell? Information and time are critical. Find out some basics about their needs, educate them on your added value and tell them you’ll get back to them with a price.

To receive this blog by email <click here> to receive by RSS <click here>. © 2008 Scott R. Sheaffer

I saw a sign at a salesperson’s desk once that read, “Dear Customer, you may select any two of the following when purchasing from me: service, quality, price.” The words on that sign are true and they provide real sales help. They tell us that customers always have to pay for value. There is no free lunch.

Think about the selling environments that are possible using this bit of wisdom. We all sell in one of three scenarios noted below, depending on our market and our selling situation at the moment.

1. We can provide great service and high quality products, but we can’t do it at discount prices.
2. We can provide great service and discounted prices, but we aren’t going to be able to provide high quality products.
3. We can provide high quality products at discounted prices, but our level of service will be low.

This is a simplistic model, but it demonstrates that it’s impossible for a company to be profitable if it provides its customers with high quality products and high levels of service at discounted prices. Professional sales help and support come at a cost. Companies that have tried to do all three at once go out of business.

As seasoned sales pros we know that we have to sell the value we bring to our customers in order to justify the pricing. When customers understand the value they are buying they understand the price too. They know they can’t get sales help and assistance for free.

Sometimes we find ourselves in selling situations where we are selling a cheaper product or a lower level of service. It is important in those environments to educate the customer about the compromises they are making in order to receive lower pricing. It’s all about setting realistic expectations about value and price in the customer’s mind.

To receive this blog by email <click here> to receive by RSS <click here>. © 2008 Scott R. Sheaffer

[Note: Watch for upcoming posts where I'll be interviewing some CEO's of companies that are changing the tools we use as sales professionals.]

If you’re selling a product that is virtually, if not exactly, the same as all of your competitors, then you are selling a commodity. Many salespeople mistakenly resort to discounting as their only selling strategy in order to get business when selling commodities.

You don’t always have to resort to this. There is a way to deal effectively with commodity selling that I’ll share below.

When selling a commodity you are also selling your personal capital too.

What is personal capital? It’s the attitude, knowledge and skills that you bring, as a sales professional, to the customer that are independent of the products you sell.

What are some examples? There are a million of them: product knowledge, knowledge of how the customer needs to be invoiced/shipped/packaged, good people skills with the employees at the customer, ability to run customer meetings with productive outcomes, anticipation of customer needs before they are expressed, etc.

Here’s the best part about all of this. Customers are willing to pay you more for the same product they can buy from your competitors because of the personal capital that you bring to the table. This is exactly why order takers make such poor commodity salespeople.

“This sounds great Scott, but my customers don’t even appreciate that I do these things for them. All they talk about is price.”

The problem is that you haven’t communicated to them the extra value that you bring. Customer surveys have consistently shown that most customers don’t know the added value that you provide to them. Furthermore, these same surveys also show that if they were aware of the added value they wouldn’t be as price sensitive.

So, how do we communicate this extra value?

Every six months show them a formal report that tells them what they are buying from you and include a section labeled “Additional Services.” List all the added value services you provide (such as the examples listed above) in the Additional Services section and put a big N/C next to each item. You can deliver this report to them at a scheduled meeting that you advertise as your semi-annual customer satisfaction/update meeting. This information will open their eyes to all of the added value that you bring that goes unnoticed. You’ll probably get some good feedback too.

If you’re selling a commodity, be sure to sell yourself first and your product second.

Please tell your business associates about Sales Vitamins™. To subscribe: <click here> to receive Sales Vitamins™ by email or <click here> for the RSS feed. © 2008 Scott R. Sheaffer

We have two big adversaries when it comes to sales proposals; the following tip can help with both of them.

1. Sameness. All proposals tend to look like every other sales proposal in the known universe to our customers and prospects. This is not a good thing.
2. LIT (Lack of Information Transmittal). Because of the way we format our proposals we often don’t communicate our added value. This can kill things right out of the gate.

What are the generally accepted rules of thumb from a salesperson’s perspective for sales proposal construction?

1. Bigger is better
2. Hide the pricing
3. Stuff it with as many brochures as we can find
4. Make it look really professional with pre-printed tabs, etc.
5. Find all the “boiler plate” text available and “find and replace” the customer’s name into it
6. Make lots of copies and send out more than the customer could possibly need

What are the general rules of thumb from a customer’s perspective when viewing a sales proposal?

1. Where’s the pricing page?

Our customers and prospects go right to the pricing page when initially viewing a proposal and could not care less about all the other filler we include.

Since we know this, we can use it to our advantage and overcome the Sameness and LIT (Lack of Information Transmittal) issues with the following proposal tip. Here’s how it works.

First, put the pricing page in a place that is easy for the customer to find. This will immediately make us look different. Next, comb through the entire proposal and find the absolutely most essential value added items that we would like them to see. Lastly, include these items on the pricing page.

Since we know they are going to immediately dive for the pricing page, we need to put the most important points where we know they are going to be looking. The pricing page. In fact, with this technique they can’t avoid seeing these important points.

This technique will hopefully get us invited to the “short list” party where we can do additional in-depth value selling.

If you’re not already a subscriber, <click here> to receive Sales Vitamins™ by email or <click here> to subscribe to the RSS feed. © 2008 Scott R. Sheaffer

Price objections. Salespeople expect to get them and customers expect to give them. Most of the time we greatly exaggerate their importance and significance and I can prove to you that I’m right.

There have been numerous studies on the most important issues to buyers when they choose a vendor. The issues identified in these studies are consistently and virtually identical. These issues are (ranked in order of importance):

1. Availability of product or service
2. Risks of partnering with the vendor
3. Service
4. Quality
5. Price

Notice that only items one and five have an objective measurement associated with them. We can tell the customer if we have the product or not and we can certainly tell them a price.

However, we can’t provide meaningful quantification regarding risks, service or quality. Our customers know that we can’t accurately give them this important information so they don’t ask about it.

But they do ask about availability and price. Customers seem to have an unending stream of questions about price, which makes us think that it’s a priority to them. It’s not, but they know it’s a question with an answer.

How do our customers get data in order to answer their higher priority questions about risks, service and quality? They get it through time and relationship with us. Over time a customer’s experience with us and our company will fill in those information gaps for them.

Evidence of this can be found in long term customers’ price sensitivity. Generally speaking, the longer we do business with a customer the less price sensitive they become. Why? We have provided them with answers regarding risks, service and quality, so price has been relegated to its proper place in their perspective, fifth.

Remember that most price objections are stated objections, not real objections. Our prospects and new customers are simply trying to learn something about us when they ask about price. We’ve got to be careful not to read too much into questions about price.

If you’re not already a subscriber, <click here> to receive Sales Vitamins™ by email or <click here> to subscribe to the RSS feed. © 2008 Scott R. Sheaffer

Think about your own buying experiences. Have you ever really believed that you were paying the very lowest, cheapest, down in the dirt “total-cost” for what you were buying at the time? The truth is, you weren’t. It’s impossible. Your customers know this truth as well.

Let’s define “total-cost.” Total-cost = the direct cost of the item or service + any associated costs for procurement.

Why is it that we and our customers can never be assured of the best total-cost on anything? There are three primary reasons:

1. Prices are never static. One vendor might have a great price at the moment but 30 minutes later another vendor has a lower price. This has always been true, but the Internet has made pricing even more fluid.
2. If a particular vendor across the continent has great pricing, but transportation costs inflate the price by 50%, this vendor’s pricing doesn’t look so competitive anymore. This would include freight on products and travel expenses related to services.
3. The cost to research and find the best price can far outweigh any savings. Spending an entire day researching the best price for the purchase of one $2.57 widget wouldn’t be the smartest investment of an employee’s time.

What’s liberating about this is the realization that at some level our customers know that they are always paying something extra for included value. That value could be the availability of the product, location of vendor, simplicity of ordering, speed of shipment, reputation of vendor, quality of service, relationship with vendor, etc.

Smart buyers are looking for the best total-cost solution, not the best price.

Our customers know they’re never going to be able to nail down the best price on any product or service they need. Knowing this, it’s our job to show them the added value we bring in order to show them the best total-cost solution and make their buying decision easier.

If you’re not already a subscriber, <click here> to receive Sales Vitamins™ by email or <click here> to subscribe to the RSS feed. © 2008 Scott R. Sheaffer

You’re more than likely familiar with the concept of customer price sensitivity. In general it’s the relative importance of pricing to the customer. There are two types of price sensitivity, general and specific. General price sensitivity relates to how much emphasis the customer pays to the pricing they receive on all items purchased. Specific price sensitivity takes this same concept and relates it to individual items. Let’s drill down a bit more on specific price sensitivity.

Since “specific price sensitivity” as applied to individual items sounds a little stuffy, let’s call these items Hot Button Items. Hot Button Items are items that the customer knows everything about, especially the pricing. They have purchased these products from every competitor known to you, and then some. They have researched pricing on the Internet and bookmarked all the URL’s. They have exhaustive purchasing records that include purchase dates, quantities, vendor and pricing for the last 12 years. You get the idea.

Hot Button Items are a problem when a customer or prospect uses them to gauge your price competitiveness for all of the products that you sell. They are quite literally just sampling your prices in order to make a judgment about your overall pricing. Now we all know that putting your toe in the water at a swimming pool to judge temperature works well because there is only one body of water. However, when it comes to your entire product line, sampling is not going to give the customer or prospect a true feel for your price competitiveness.

So how do you handle Hot Button Items? The first, and most important, thing you have to do is discover them. Early in your relationship with a prospect they will frequently ask you about pricing on a handful of items that they don’t need. This should be a red flag that these are probably Hot Button Items. A very telling question that can be used to isolate Hot Button Items when a customer or prospect is asking about pricing is simply, “How many of these do you need and when do you need them?” If the customer or prospect says, “I don’t need any right now,” bingo, congratulations, you have identified a Hot Button Item.

When confronting Hot Button Items you’re going to need to sell your value more aggressively, provide a bigger and better representation of your pricing and, as a last resort, heavily discount the Hot Button Items. If you have to substantially discount Hot Button Items, use your margins on other items to help compensate. If they are only wanting to buy Hot Button Items from you, move along to the next opportunity. Your time is more valuable than that. Most importantly, don’t get sideswiped by Hot Button Items because you weren’t paying attention.

When it’s time to provide pricing for a customer most companies tend to rely almost exclusively on their costs to determine the selling price. But that is a mistake. Sometimes we can make huge margins on certain items and still be competitive. At other times we have to tighten our belts because if we didn’t our selling price would not be in the ballpark; to do otherwise would be foolish from a marketing perspective.

Every day companies around the globe price items too low and too high because they primarily look at the costs when pricing. The fallout from this is lost business from pricing too high and lost dollars from pricing too low. Obviously there must be a floor on gross profit when creating a selling price, but other than that, cost shouldn’t be a significant factor.

The reality is that we need to price according to what the market, and more specifically the customer, will bear. We need to focus on what the final sales price should be, not on the cost in determining a sales price. Our customers don’t know, and probably don’t care, what our profit margins and costs are; they are solely interested in the sales price and this should be your focus too.

Studies show that salespeople frequently have gross profit percentages on their orders that tend to congregate around numbers divisible by five. Now why in the world is that? The reason is the math is faster and they are erroneously focusing only on cost in their calculations. The foolishness of this is that the salesperson is either under pricing and leaving commission dollars on the table or overpricing and jeopardizing the sale - all for the sake of mathematical convenience and a selling price based solely on cost.

Calculating a sales price based on market variables takes more time and effort. If you take the time, you’ll make more money and lose fewer sales.

It’s a joy to post to this blog because I never have to look for material. Really, never. By just living every day I see many examples of good, and unfortunately bad, sales skills. Sadly I have to report about my observation of some poor sales skills. Here’s what happened. I was attempting to get some help with my home computer through a home computer service company. Okay, I’m somewhat technical but not enough to resolve the problem I was having. Engaging a computer service company is really service in its purest form; I am buying their know-how and brainpower. There are no products here.

I talked to a salesperson that was intelligent and seemed knowledgeable. As I talked to her I was gaining confidence that this was going to be the company I would contract with to fix my computer woes at home. Everything was going great until we started talking about price. We saved the pricing discussion until everything else had been covered. She quoted a price per hour that was at least 1/3 of what I was expecting. My first reaction was to be thrilled with the cost savings I was going to realize. After about three nanoseconds however, I realized that a legitimate company with qualified personnel could not, and would not, price at this level. I chose to move on to another company.

What is the dynamic here?

1. Service is not a commodity. You’re not selling corn, steel or shower heads when you sell service. Knowledge, information and intelligence can be sold for a premium. Service absolutely defies commoditization. Think about it, no two service companies provide exactly the same service; therefore pure price comparisons are impossible.

2. Any economist will tell you that customers appreciate discounts and will move their business to companies that provide the best prices, up to a point. When service prices are overly discounted buyers begin to think that the service being sold is inferior. This was my experience with the computer repair company.

3. Service businesses need to do the opposite of what commodity businesses do in pricing research. Whereas commodity businesses perform market research to insure their pricing is competitive (i.e., not much higher than the competition), service businesses should do research to ensure that their prices are high enough. Do you expect Harvard University to have the lowest tuition rates? As a student you would be confused if they did and would wonder if Harvard was all it was cracked up to be. Your customers and prospects feel the same way about your business.

Have you ever considered why people brag about how much they pay their lawyer per hour? Why do you think people brag about how much their doctor charges? They feel this indicates the quality of the service they are getting and how important they must be to get this level of service.

Service providers, think twice before you dive to the bottom of your pricing bag. Will you lose some business because of pricing if you don’t sometimes massively discount? Yes, but you will more than make up for this lost business (and probably not very desirable business either) with the additional revenue you accumulate through high value pricing.