Are You Giving Away Your Profit?
Want a quick way to destroy sales motivation and profit at the same time? Picture yourself as a sales manager who suddenly receives a phone call from a salesperson who is on the verge of closing a sale. Here's a sample of that typical conversation:
Salesperson: "We have to cut our price to get the first order. Then, once they see what we can do for them, we will be able to raise our prices. I'm sure once they see how good our service is, I'll be able to convince them to pay the regular price."
Hmmm. Really? I'll let you fill in how you feel the sales manager should respond. The sad comment is that too many times, the sales manager – after sounding tough on the telephone for 30 seconds – then gives way to the idea of lowering the price by saying something like, "Well, just this time, but we certainly can't go making this part of our sales tactics with other customers. The only reason I'll say 'yes' this time is because of how much business is at stake."
I can't tell you the number of times I have heard this rationalization. Sadly, what blows me away is the number of times I have heard it when somebody is trying to land a new customer – but then I never hear from these same people a year or two later expressing what the long-term results have been. Why do salespeople or sales managers never share with me the long-term outcome of such "price reduction" strategy? Because it never works out the way the salesperson or the sales manager initially believes it will.
Let's look at this from the customer's perspective. If you bought something at one price, don't you think you would be able to buy it again at the same price? Sure you would. So why do you as a salesperson think that increasing the price after the initial sale is going to go smoothly?
Cutting your price to secure the initial deal only does one thing - it takes profit out of your pocket.
Many of you are thinking that this is all right, because all that is being lost is some profit on the initial sale. My experience is you're giving up profit not only on the initial sale, but also on any future sales to come.
The reason is simple (so simple, in fact, that I can't believe so many salespeople still think slashing price on the initial sale is a viable option). The first price the customer gets is what they believe is the right price with the right value. If the price is higher, they believe it to be unfair.
Sales motivation takes an even greater dive when the customer is ready for the next purchase, and the salesperson begins to wander down a dangerous path. The salesperson justifies in their own mind why increasing the price is just "not the right thing to do" and will "jeopardize the long-term value of the customer." In the blink of an eye, with that one thought, the salesperson has committed themselves to lower profit on a going-forward basis (maybe even indefinitely. Yikes!).
As tempting as it might be to cut your price to gain a new customer, don't do it!
If you can't land the customer at the profit margin your business plan is built upon, then that particular customer is not worth having. Think I'm crazy? Run the numbers over the long-term and you will see what I mean.
To avoid being in the situation where you feel desperate to get a sale "at all costs," here are some strategies to put in place:
First, maintain a strong pipeline of prospective customers. Discounting is far more prevalent when a salesperson believes the sale on which they are currently working is the only sale they are going to get.
Second, never attempt to close a sale until the customer has identified to you the specific objectives and you've had the opportunity to explore the needs they have. When the customer understands the benefits you're helping them with and the gains they're going to get from those benefits, then you're in a much better position to close the sale by not having to discount your price.
Too many times, the salesperson gets taken down the price discount road only because they have not taken the time upfront to get the customer to fully explain the benefits they're looking for. As tempting as it can be to close a sale quickly, the pressure of the price discount is many times what emerges when you attempt to close too early. Allow the customer to verbally describe the benefits for which they are looking. This gives you time to expand on them and, in turn, help the customer see the full value of what it is you're offering them.
Protect your profit. Protect your sales motivation. Both are too valuable to toss aside, all in the name of making a sale.