September 23, 2013
Profit Maximization: Sales Keeps Discounting and It May be Your Fault

Before I came to Price Intelligently, I worked for a startup called IdeaPaint, the inventors of a dry-erase paint that effectively turns walls into whiteboards. Customers think it’s cool, it enables spontaneous creativity, and overall it was a fun product to sell and promote. All that being said though, there was one problem - customers thought it was really expensive.

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via Drift Words

The superior durability and performance of IdeaPaint (including the lifetime warranty) made us the gold standard in the market, but selling was potentially difficult because the presence of multiple competitors made the premium, $4 per square foot price point (compared to competitors’ $2 per square foot or less) a challenge to justify. Most salespeople's first notion facing this problem would be to discount until the cows come home. Fortunately, we believed enough in the product that we were able to understand the value and sell the price appropriately, resulting in a higher price and volume.  

Buyers today want to know the value your product provides to their specific business, and they don’t need a deep discount to get there. As such, let’s examine the reasons sales reps utilize discounts before looking at ways you can help your sales team communicate value more effectively. After all, that’s how true profits are found.

Why your sales people are discounting

Without being well versed in the value metrics of your business, sales people will inevitably deviate from the set price. Most commonly, this is because:

1. A lack of faith in the price

When sales representatives don’t believe the price of your product can be justified to the consumer, having them sell with conviction at your price point will be impossible. Salespeople need to believe in the validity of your price point in order to convey that belief with conviction to prospects.

2. Misaligned messaging from management

Many pricing decisions are made by the management within an organization, and so are decisions about how to meet sales targets. It’s common practice for managers to encourage salespeople to discount at the end of the quarter to help the organization meet sales goals. Ultimately though, these practices undermine the pricing goals of the organization and teach salespeople to rely on price rather than value to close deals.

3. Fear

In markets where competitors sell products at a significant discount, fear plays a large role in a salesperson’s motivation. If a representative isn’t well versed in the value of your product at the given price, fear can ultimately induce wavering on the price in an attempt to save a deal.

Pricing SaaS

In fact, it’s not uncommon to hear salespeople bemoan a lost deal because the price point wasn’t right for their prospect. Their gripes may be valid in some cases, but often the sale is lost due to poor communication and training within the organization.

Aligning management and the sales team

With this in mind, there are concrete ways to give salespeople the right information, training, and collateral to not only maintain price in negotiation, but also to communicate effectively to prospects the value your product provides:

1. Get your sales people on board with the price

Having worked in many sales organizations before, I can say that my conviction about a price point is always stronger when there is a culture of profit and I understand why prices have been set in a certain way by management. One of the easiest value centric ways to communicate this to your representatives is to dollarize the value of your offering.

For example, let’s say your own a SaaS company that focuses on task automation, and on average, a business that uses your platform will save 20 hours a month in data entry labor costs. At $20 per hour, this equates to $400 in monthly savings for a prospect’s business. Now, let’s say your company charges a $200 monthly licensing fee for the product, which equates to a $200 savings per month for the prospect. With service value and return on investment like this, there should be no reason why a sales representative can’t communicate the dollar value of your product.

Pricing Strategy

2. Clearly define metrics for a qualified prospect

Many companies define a qualified prospect as an interested decision maker that you’ve contacted and spoken with. In relation to price communication though, qualification must include an understanding of the prospect’s budget and willingness to pay. Too often, sales people keep leads in the pipeline that cannot afford the service, or simply aren’t willing to pay for the value your service provides. As such, when quarters end, sales people resort to discounting or incentive laden deals that entice prospects to buy when they otherwise wouldn’t. This strategy may help maintain revenue streams in the short-term, but in order to get optimal paying customers into the funnel that are willing to purchase your product at a profit maximizing price, your organization needs to have a strong qualification process in place that quickly removes unqualified buyers from the pipeline.

3. Consistently role-play the price conversation

Let’s be honest, sales people hate to role-play. Most of us just want to get to the phones because, as the old mantra says, more dials equals more sales. Role-play training has an important role in sales organizations though, especially in ones where customers routinely express pricing objections. Walking through scenarios and talk tracks for pricing objections, building value, and uncovering a prospect’s needs gives a salesperson the arsenal to effectively sell to your price, not in spite of it. The point of role-playing is not to instill robotic scripts in the minds of your sales representatives, but rather to give them the tools and perspective to confidently approach these conversations without needing the crutch of a discount.

Sell on Value Rather Than Price

When your business implements a value based pricing strategy, keep in mind that your sales team will ultimately be responsible for executing sales at the chosen price point. Gaining their perspective on the competitive environment, the customers, and the sales process will ensure you can uncover the true value of your product as well as communicate the need for your current prices. Simply put, when salespeople are given the proper tools to effectively convey price and value to the consumer, there will never be a shortage of qualified prospects in your pipeline.

To learn more about pricing specifics, check out our Pricing Strategy ebook, our Pricing Page Bootcamp, or learn more about our price optimization software. We're here to help!

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