Our client sold temporary labor services to manufacturers. Their salespeople were compensated on number of hours sold, and their branch managers were compensated on revenues and profits in a method so complicated that none of them ever bothered to figure it out. The salespeople were trained to focus on the customer and his needs, but very little attention was paid to pricing. Several of the salespeople had exemplary sales skills (and several did not). But they were trained and managed to "get the deal" at any price. The results were predictable...
Salesperson compensation, training and management often lead to lower profits and lower prices. This sad truth probably costs American business billions of dollars in foregone profits. It’s sad because it is not necessary.
Nearly all buyers – even (especially) purchasing agents for large companies – will tell you that they rarely buy the cheapest solution. They buy the one that generates the most differential value (value to their company minus the price). It’s up to the company to create and deliver a higher value than its competitors, and therefore justify charging higher prices. It’s up to the salesperson to understand the elements of value from the buyer’s unique point of view, and then to build the perception of the value he or she is offering. This drives three very specific actions that salespeople need to take in order to win higher prices:
- During the presales conversation, position your company as a source of high value, not a source of low price. In a few rare instances, this will terminate the sales process, but that’s usually a good thing, as this buyer is signaling that he or she will buy only on price and the business will probably not be profitable. Salespeople can make statements like “we’re not the cheapest solution you can find, but our customers know that we provide the best value and I’d like to show you why they are willing to pay the difference.”
- During presales conversations, ask questions that elicit from the buyers their elements of value. For some it might be a strong warranty, references from accounts they know, timely delivery, good technical support… But the key objective of the fact-finding process is to understand how to express and convince the buyer of the value of the offering.
- During final negotiations, resist demands for lower prices. Sometimes this just requires fortitude, but sometimes it requires unbundling structures that let the salesperson remove features, services or guarantees to lower the value commensurate with lowering the price. This forms the basis for productive negotiations. Note: Most companies leave it to the salesperson to figure out which features or services to remove in the negotiation, but this is a mistake. Salespeople are motivated “get the deal” regardless of the profitability and they usually don’t have the data or the visibility to do a good job at structuring unbundles. These structures should be created by those responsible for product management, and taught to the salespeople as part of their training.
So how do your company address these issues? Are the sales person trained to position the company for higher prices? Can they really find out and sell value? Are your product strategy such that the salesperson can unbundle if nothing else works?
Founder/CEO Atenga, Inc.