1. Making It All about You

The proposal tells the customer how you will solve their problem. Period. Resist the temptation to include lots of background about your company, your team, and most of all, your products. Describe expertise and features only in relation to the customer’s specific problem and the benefit you provide. If you feel you must have an “About Us” section, keep it to a short paragraph. It’s great to introduce key players on the project, but keep their bios short, too. You can always use hyperlinks to product literature, awards lists, the “About Us” section of your website, and other material, giving the customer the option of learning more, without compelling them to waste time while they are reading the proposal.

2. Not Talking about Value

This section ties into #1, but relates to the customer’s point of view. You need a crisp, clean answer, not just to the “who? what? where? when? and how?” of the project, but also the “why?” Why does the customer want to do the project? What happens if they complete it successfully? What happens if they don’t? Everyone on the project should have a clear view of the project goals, success metrics, and impact. This doesn’t mean that every project has a precise ROI of 322% in 6 months. While quantitative value is great, even something simple like “we don’t know how many web visitors are not converting, so we can’t even start to optimize conversion yet” can provide clarity. (See “how to write a killer proposal” for more tips on gathering value information.)

3. Writing Like a High Schooler

High school essays seemed like a contest to take simple ideas and turn them into complex sentences laced with SAT vocabulary words, extended until the essay met the minimum length requirement. It’s a wonder our english teachers are still sane. Write your proposals the opposite way.

Keep them as short as possible. Your readers are busy.

Distill the words and sentences to be as simple as possible, but no simpler. (I got a rude awakening in my college freshman writing course. The professor took a red pen to my bloated writing, often simply crossing out over half the page.) Avoid jargon, unless it’s your customer’s jargon. Don’t leverage the word “leverage”, when you can use the word “use.” Your writing reflects your thinking. (Oglivy reference, Orwell reference). If your writing is bloated and incoherent, what does that say about your ability to deliver the project? Reread your proposal to find sections that you can streamline, simplify, or clarify. (For great writing tips, see this advice from Orwell and Ogilvy.)

Make sure your grammar and spelling are correct. (I once started a presentation with a slide that misspelled the project leader’s name.)

4. Vagueness

Your proposal should spell out who needs to do what, and when. Almost every proposal should have a timeline so the customer knows what to expect as the project progresses. You may not know enough to spell out every date and milestone in detail, but be as specific as you can. If you can’t give a date, give a range, and tell the customer what influences the estimate (“data collection can take from 1 day to 1 month, but typically 2-3 weeks, depending on whether we have full time access to your database administrator”). You can use relative dates (“1 week after data collection, we will have the initial TPS reports”). Make sure you specify what you need the customer to do for you. Many projects run into trouble because you are waiting on the customer’s help, but you never told the customer that you need 6 hours of the VP of sales’ time to validate the TPS reports. Stuff happens and peoples’ schedules may get shuffled around, but at least the customer won’t be blaming you if they know that the project is blocked on their side. Being upfront about commitments also demonstrates your expertise in solving the problem.

5. Not Asking for What You Want

Small business owners are the worst offenders here. Most sales reps have enough constraints that they have to ask for certain things, whether they really want them or not. Don’t ask for what you think the customer wants you to want. Ask for what you want. The most important issue here is price. Don’t underprice. Especially when you understand the value. Don’t overcommit on schedules. If you need to take a week off to deliver a talk at a conference, tell the customer when you lay out the timeline. If you want to collect some payment before starting the project, ask for it. I can’t count how many of my customers wanted to get some upfront payment to reduce their risk and improve cash flow but never thought to ask for it. When they started asking for it, they got it, over 75% of the time. Want a customer quote or video testimonial? Ask for it. Want to work offsite 50% of the time? Ask for it.

The customer may say no. They may want to negotiate. That’s OK. If they do negotiate, know that you can negotiate, too. (You might not be getting enough price objections.) The customer wants a lower price? Maybe they can’t get the rush delivery. Or maybe they have to pay more upfront. Or do a video case study. Or let you work in off-hours. The proposal should create a positive outcome for both sides. If you don’t even specify what your positive outcome is, don’t be surprised when you don’t get it, when you’re working long hours for low pay on a project you don’t find exciting. However, all of these mechanical issues that we often avoid discussing have be discussed with the customer before you create the proposal, because we don’t want…

6. Surprises

Surprises are great for birthday parties and terrible for proposals. Imagine if you were discussing a problem with a potential vendor, you thought you had a good solution, you asked for a proposal, then you find out the project costs twice what you had expected. Or that your commitments will shut down your sales team for a week. That wouldn’t feel good– don’t do it to your prospects. Discuss everything ahead of time, so the proposal just puts everything crisply and cleanly on “paper”, whether physical or virtual.

7. Using Proposal Technology from 1995

If you’re writing your proposal in Word, copying and pasting from different templates, dumping pricing information from Excel, sending the whole thing off via email, then wondering the next week whether the prospect has even read your proposal, there is an easier way. Now you can easily create a great looking proposal in the cloud, send your customer a link, get notified when they read it, see how much time they spend on each section, and collaboratively create a great solution. Shameless plug, of course, we offer just such a solution, because I was tired of struggling with proposals, too. (Check out a sample proposal about how to save the Death Star.) Give Mimiran a try for 30 days on us. See if you don’t sell faster at higher price points, while you spend less time on the grunt work of creating and updating proposals. You won’t want to go back to 1995.

This process typically involved calculating some prices in Excel, copying them into a Word document, doing some Find and Replace on the Word document to make sure the company name from the previous proposal was replaced with the company name for this proposal, and so on. Hours, or perhaps a day or two later, you email the proposal to the customer. Then you spend a week trying to find a time to discuss it. The customer wants changes, and the process repeats. I know, because I had this experience personally.

So, we added the ability to turn a quote into a rich, online proposal. Now you can calculate your prices automatically, then drop the pricing information into a proposal template with rich formatting, including images and video. You can upload your existing proposals as templates, or create new templates. Best of all, when you send a proposal to the customer, you know when they are looking at your proposal– you get an email notification. Now you can call at the right time. You can even see which sections the customer viewed, and for how long. You can exchange comments with the customer, and update the proposal while it’s in Collaboration mode.

You can also pull in contact information from CRM systems: Highrise by 37Signals or Salesforce.com.

The Highrise integration is very simple– just enter your Highrise address and API key, and you can sync contacts down from Highrise and deals back up to Highrise. Proposal activity in Mimiran turns into notes on Highrise Deals.

(The Salesforce.com integration currently takes anywhere from a couple of hours to a couple of days, depending on what you want to do. Just contact us or our Salesforce.com implementation partners, led by Salesforce Gold Cloud Alliance partner, Strategic Growth, Inc, can you get you going.)

It’s made my life a lot easier, and if you’re still using Excel/Word/Email to handle your proposals, step into the 21st century. Start a 30 day free trial and see how you can create, send and close killer proposals. Spend more time doing what you love, make more money doing it, and spend less time on the paperwork. (Check out a sample proposal, and read more about how to create a killer proposal.)

Of course, you say “yes”, and then you spend hours, maybe even days, and occasionally weeks putting together a tedious document that has none of the vibrancy of your original conversations. You try to figure out exactly what to sell them, and how much it should cost, often by pointing a finger into the wind coming from your spreadsheet application. (See the Pricing Battle Plan for Services post for more thoughts on how to prepare for this part of the process.) Then you gather a collection of Word documents representing past proposals (or, gasp!, your’re writing your first one), and start copying and pasting. Then you start finding and replacing, to remove references to the last customer, and update the names to reflect the current deal. You realize you don’t have all the information you need, so you call the customer back, and then wait a couple of days for responses. This lack of information is one of the main causes of dread– you don’t know what really need to do, so when you try to put a plan on paper or on screen, you realize you don’t really have a plan. When you are finally ready to send the proposal, you print it to PDF, or perhaps just send the raw Word document over to the customer in an email. Then you try to schedule a time to chat. At this point, you don’t even know if the customer has read your proposal. Eventually, you connect, the customer has some questions or objections (you deftly handle price objections without giving things away, because you have a Pricing Battle Plan, right?), and you go through another iteration. Two weeks later, you finally close the deal. Let’s be optimistic, right? Sometimes you go through all this effort for nothing.

Is there a better way?

You can tell by the fact that there’s a bunch of text below this question that there is. It’s a long post, but if you’re like me, it pales in comparison to the time spend on proposals. I think you’ll get a good return on your time.

So let’s talk about how to write a killer proposal. We’ll divide this into two parts.

1. Having the right conversations with the right people so you get the information you need to really solve the customer’s problem.
2. Handling the proposal itself– creating, sending, and winning.

First, you need to have the right conversations with the right people. In some cases, you can get lucky, and you only have to convince one decision maker, who has already called you, eager to discuss her problem. Let’s start with the simplest case, right? First, let the customer describe her problem, in her words, on her terms. Resist the urge to jump in and start solving the problem in the middle of the conversation. Resist the urge to ask leading questions. This will put the customer on the defensive and prevent you from uncovering the very information you need to win the business. Instead, ask open-ended questions, starting with very high level issues like

• What is the impact of problem X? (If they can’t talk about the problem is business terms, you may need to talk to someone else. In this case, since we are talking to the business owner, we will assume they have a reasonable handle on the impact, which is why they are calling you. When talking to a large company, the person calling you, who may actually have budget and approval for the project, may not know what the real business drivers are, so even if you solve the stated problem, your proposal can get shot down higher up the chain of command.)
• How have you tried to solve this problem previously?
• Why is this problem important right now?
• How does this problem’s priority compare to other personal and company priorities?
• What would you like to see in a solution?
• How will you measure the success of the project?
• What would you like to preserve about the current process?
• If you could change one thing with a magic wand, what would it be?
• And so on and so forth.

If you have never taken a sales training course, or perhaps more importantly, if you have, check out Barry Rhein’s website, SellingThroughCuriosity, and take his online sales challenge. It only takes a few minutes, and it will help a lot with these kinds of conversations. Even better, sign up for one of his 2 days sales courses. This is the guy who trains the Salesforce.com sales team, after all.

These open-ended questions help the customer describe their problem to you in their terms. You’ll need to understand and use these terms to win the business and successfully complete the project. Don’t forget to ask about how they make their decisions and allocate their budget. However, instead of asking things like “have you allocated budget?” and “when are you making a decision?”, use the open-ended method:

• How will you and your team make a decision about whether to move forward on this project? This may get you all the information you need, but often you’ll need to probe a bit more to really understand what happens, so you can follow-up with questions like:
• How have you made decisions like this in the past?
• What other reviews do we need to do to make sure your team is on board? (Even though we think we are talking to the sole decision maker, they may have a right hand man, who always signs off on important projects, or a lawyer who reviews contracts, etc.)
• How do you see us working together?
• If you haven’t got any inkling of budget yet, you can ask things like, “how does budget get allocated for these types of projects?”, or “what are your high-level expectations of commitment of both time and money from your team?”

Take careful notes, because as much as the whole thing seems very memorable when you’re having the conversation, it will seem a lot muddier when you’re back at the office, or even trying to remember a conversation from last week.

When you have multiple stakeholders, things get more complicated, but you can take the same general approach. You just have to make sure that your open-ended questions provide the names of all the stakeholders, and you’ll need to have these conversations with all of them. It takes work, but it will actually be fun.

Once you have the high-level landscape, you can drill into lower-level questions, using the same general approach. (“What is the impact of having an onsite database behind your firewall instead of a cloud-based datastore?” Never assume that you know their answer, just because you know an answer.)

As you go, confirm what you think you have learned. (“So the single most important issue with the onsite database is peak load capacity?” “Oh, OK, that’s a problem but you can work around it, the real issue is that our team in Asia has to connect over a really slow VPN.”)

When you have confirmed the problem and decision making process, you can talk a bit about the solution and benefits. Resist the temptation to talk about the solution too much. Focus on the benefits, while confirming things that are critical to the project (“how can we get your database administrator to help with this project if he thinks his job is going away?”).

Part of the solution is the price. You don’t need to quote down the penny at this point, but you should be able to give a range, with a set of high-level assumptions that determine which part of the range applies. (“If your database administrator can handle the data export for us, that would save a lot of time and money.”) Even though you aren’t quoting an exact price, be confident in how you discuss price. You should already know the value from your earlier discussions of the problem. If the value is lower than you expected and makes your price seem unrealistic, you can discuss your typical pricing and then discuss ways to save money by reducing the work you have to do (not simply by discounting for nothing!). Note that if you feel the customer is missing part of the value equation, dig deeper when discussing the problem. Perhaps they don’t perceive some pain points that your other customers do. This is a great thing to understand, especially if it helps you keep the budget competitive while pushing the other issues to a potential future project. If the value is much higher than you expected, make sure you consider ways to help the customer reduce risk, even at a higher price. After all, a project with a $1M payoff can neither afford nor justify the same level of risk mitigation as a project worth $100M in benefits.

Now you have a recapitulated the problem, the basic solution, the approximate costs, and how you’re going to work together. Make sure you ask “what else should I consider?” There’s a temptation in sales, especially for business owners (especially, especially for technology-focused owners) to want to leave before you here more objections. You’ll often be able to deal with objections easily at this stage that could kill the deal later. It’s much better to get things on the table when you can deal with them, than have issues blind-side you after you’ve spent a lot of time writing your proposal. So you have just gone over an informal “proposal” with the customer. They have nothing else for you to consider, and they say “can you send me a proposal?”

You can just say “OK”, right? Not just yet. You can tell them that you think you have a good feel for the problem and solution, but you want to make sure you’ve captured the essence of the conversation in the proposal. In case you haven’t got good answers yet about how they’ll make this decision, how the proposal will be used, what are the concerns of the people who will see the proposal, how would they like the proposal laid out, etc, ask now. The important thing is that the proposal will have no surprises. It summarizes and clarifies the discussion, but adds nothing new. If you get back to the office and discover you want to add something new, call the customer and discuss it first, don’t just stick it in the proposal and throw it over the wall.

Now you can actually go back to your office and you already have the proposal, just not in quite the right form.

This leads us to part 2, on creating, sending, and winning.

Organize your notes and thoughts. If the company has requested a specific format or flow, make sure you follow that. No surprises, right? If you’re using an app like Mimiran, you’ll have a standard template (or perhaps several) that will help you organize your proposal and drop in information quickly, while still individualized to the particular needs of the decision maker. My standard template has these sections:

• Situation Summary. Make sure everyone knows exactly what is at stake, in business terms, and why the customer needs your offering.
• Solution and Timeline. What are you going to do? When are you going to deliver? What does the customer have to do along the way?
• Pricing. What does this cost, and when are payments required.
• Terms and Conditions. A relatively short boilerplate specifying terms and limiting liability.
• Acceptance. A brief section at the end that indicates what they need to do to kick off the project, especially if payment is required upfront. (Always ask for at least some upfront payment.)

(There’s a link to a sample proposal at the end of this post, to give you an idea.)

Keep it short. You are dealing with busy people. Provide the information that you need, but no more. This is not high school english class, where you are trying to fill up 10 pages. Shorter is better. You can always include links to other materials– product brochures, training videos, videos of speeches or talks, case studies, and more.

Use the customer’s terminology whenever possible. If they call a “product” an “offering”, or vica versa, use their language. Even if your language is the industry standard. Unless the project is to teach the customer industry standard terms. Remove jargon that isn’t specifically used by the customer. The simpler the language that accurately conveys your meaning, the better and more authoritative your proposal sounds. The more you fill it up with MBA-speak, the less it seems like you know what you’re doing. (Note there may be some audiences that want MBA speak. Try to avoid them.)

While you are using the customer’s terminology, resist the urge to make the proposal about you, your company, and your products. Keep focused on their company, their problem, and their benefits. You, your company, and your products are supporting actors, they are the leads. It’s not about you, it’s about them.

Instead of typing up a Word document, log into Mimiran (free trial link) and create a new proposal based on your favorite template. Fill in the appropriate sections, for example, the Current Situation and Solution. When you add your offering(s), Mimiran will compute a price based on your rules. No second-guessing. Be confident in your pricing. If the customer wants a discount, they can earn it by ordering more, paying earlier, or making a longer commitment. They can’t get a discount simply by asking for it. If you quote beyond their budget, find a way to remove value from the proposal, along with reducing the price. You can’t get a Ferrari for the price of a Kia. You shouldn’t be selling Ferrari’s for the price of a Kia, but many small business owners do just that. You can also set up configuration rules in Mimiran to help guide your selling. For example, many services businesses want to offer retainers or follow up services, but have trouble actually doing that. So you can setup a rule to recommend doing that as part of the sales process. You can even require certain products be sold together, like software with setup, or coding services with project management. These are business rules that in theory you are always following, but sometimes need a gentle reminder to actually execute.

If applicable, add images that clarify the language of the proposal, both for the problem and the solution. These days, you can even snap a picture of a whiteboarding session (with the customer’s permission, of course) and add it to your proposal. If you need video to illustrate a concept or process, embed some video. Rich media are especially helpful if the proposal will be reviewed by people who may not have been part of all the discussions and don’t have intimate knowledge of the proposed solution.

If you were creating a Word document, at this point you would print it to a PDF file and send it as an attachment to the customer (or just send the Word document). Since we’re doing this online, though, we can just click the “Send” button. The customer will get a nice email telling them you want to share a proposal with them. You have told them to expect this email. They can click on the link and start going over the proposal. Best of all, you get a notification email when they open your proposal. No more wondering if they’ve read it. You also get a notification if they comment on the proposal. You can also see how long they spend looking at each section of the proposal. Now you can call them when they are looking at your proposal, which greatly reduces time to close. I’ve done this, fielded questions on the proposal, made edits, and got customer acceptance during the call. So much better than spending a week trying to get on each others’ calendar, then having to go back and repeat the process when the customer has questions.

What does this have to do with the Death Star, a colossal investment destroyed because no one bother to put screens over the exhaust port leading to the main reactor? Here’s a humorous example of how online proposal software can create a simple proposal that could have saved the Death Star.

Here are a few comments on the proposal:

• Note the strong problem introduction. There’s a bold graphic at the beginning, and detailed descriptions of the business value of the solution.
• The company’s logo is the main graphic element in the prime upper left corner.
• The solution includes the customer’s obligations and assumptions about how to keep the project on schedule and budget. This should be something you have already discussed with the customer (no surprises), but it’s important to document, not just to CYA, but also to make sure people involved with the project know what their commitments are.
• Pricing, product information, and customer/contact names are pulled automatically from merge fields, inserted with the proposal editor.
• You can introduce project personnel with a picture– faces mean more than words (hopefully you have a better picture and better personnel, but this is humor) and provide company background.
• Comments are captured with the proposal, along with the history of when the customer viewed each section.

With the right tools, you can spend less time creating proposals and trying to close deals, and more time actually solving customer’s problems. And since you’re not guessing about pricing and discounting excessively, you can make more money doing it.

Here’s some advice that may seem counterintuitive. RAISE YOUR PRICES.

But if you raise prices, you might lose customers, right? That’s certainly possible, and possibly certain, depending on how much you raise them and how you communicate with your customers. Which customers are most likely to leave? The ones who value what you provide the least. The ones who are probably the biggest pain to work with now. If they leave, and you make more money serving the customers who really value what you do, you can spend more time and energy focusing where it matters, to both you and your customers.

What’s better: working 100% of the time for $100 per hour, or working 50% of the time for $200 per hour? Most people would say they’d rather work less and make the same money. Yet many business owners focus on the amount of work, rather than the amount of profit. (Or course, businesses have to cover their costs, and especially in high fixed cost contexts, you may need a lot of volume to make the numbers work.)

You don’t have to double your prices (although I recommend thinking of ways to do it, and at least giving customers the option– you may be surprised at what happens), but even modest increases can do wonders for your bottom line. If you are currently making 20% margins in a high variable cost business like services, raising prices 10% will almost double your profit if you keep volume the same. If you lose 20% of your volume, you still make almost 20% more profit. And you did while working less. So the work that you do, for customers who care, becomes fun again. And you can take that extra time, energy and money, and invest it back in your business, your family, and yourself.

If you don’t like price objections, you could be accidentally killing your business.  If no one ever objects to your price, many of your customers would probably pay considerably more.

Charging a little more has a disproportionate impact on the bottom line.  For example, raising prices 10% from $150 to $165 per hour will likely raise profit much more than 10%.  Since that extra margin goes straight to the bottom line, you might increase profit 20 or 30%.  That sure beats working 20-30% longer!

In addition, pricing objections give you great insight into what the customer cares about.  They are learning opportunities.  You get to learn about the customer, and you get a chance to test your messaging for why your price premium is a good investment.  No objections, no learning.

When you get an objection, there are 4 possibilities.

1. The customer was never a good fit.  You should suggest they go elsewhere.  These are the “I want a brand new Ferrari and I have a $20,000 budget” customers.  If you currently sell them $20,000 Ferraris, you have a big problem.
2. The customer is a good fit for your company, but has legitimate reasons for wanting a cheaper price.  These are the “I want a really fast car, something like a Ferrari, and I have a $50,000 budget” customers.  Maybe they can get a used Porsche 911.  Maybe you can remove some of the value from your offering and lower your price, and/or give them discounts for upfront payment, flexible scheduling, volume purchases, or other behaviors that create shared value.  (See more on how you can Price for Profit.)
3. The customer is a great fit, but wants to see if they can get a better deal.  These are the “I’d love a Ferrari, what kind of deal can you give me?” customers.  They are asking for a discount because they know it can’t hurt.  Make sure they understand the value message, and charge them the right price.  They can get a discount if they agree to some of the shared value behaviors in step 2, of course.
4. The customer may be a good fit, but they are using price as a mask for deeper issues.  These are they “I’d love to buy a Ferrari, but I can’t spend more than $20,000 (because my wife said I could get a Ferrari if I didn’t spend more than that)” customers.  So you say “let’s say we agreed on your price, are you ready to buy today?”  If they are ready to buy, you can deal with the price objection by putting them in one of the previous 3 categories.  If they start talking about their budget cycle, IT approval, the need to get buy-in from their Tokyo office, etc, then you know that price was just a smoke screen.  They have other issues that they may not feel comfortable airing, but even if you lower your price, those issues remain.

Note that customers put themselves into these categories.  The price objection just helps you figure out how to deal with them.  Don’t assume that everyone is in #2 and will respond to lower prices.  This just becomes a self-fulfilling prophecy and teaches your customers in #3 and #4 to act like they need more discounts.

Now consider what happens when you don’t get a price objection.  Either:

1. You priced the offering at exactly the optimum price for that customer, or
2. You underpriced.

So when was the last time you got a price objection? How did you handle it?

1. Customers tend to focus on hourly rates, rather than total project cost, let alone value for money.
2. It’s easy to offer deep discounts to get people off the bench and back to billing.
3. Customers are nervous because the whole reason they need a service is because they don’t know how to do something themselves and they may not even know how to evaluate providers.

When business owners get back on their heels, they find clients eager to challenge them on hourly rates.  They end up working long hours at lower rates, or sometimes for free.  What’s worse than not getting enough work and not making enough money?  Working too much and not making enough money.  This ends up destroying a lot of small businesses, because the love for the work that caused the owner to start their venture in the first place dries up.  As the downturn hit and clients cut back, Smiley’s owner found herself working more for less money and she had to reduce her staff.  She felt she provided good value, but was losing business to competitors with lower rates.  In addition, while her nominal rate was pretty good, she ended up discounting it during the proposal phase, which reduced revenue by about 15-20%, but reduced profit by almost 50%.

So we put together a battle plan.

We started with #3.  Smiley’s founder sensed hesitation in the buying process, and often countered with discounts.  However, this hesitation is because the buyer has to make a leap of faith that the provider can deliver.  Lowering the price does not lower the perceived risk– it may even increase it.  Companies may not come out and say “I’m not sure you can deliver and I’m worried about my career if you don’t.”  They may even say that price is the problem, or mumble something about you being more expensive.  So first, we decided there would be no discussion of discounting initiated by Smiley.  If the customer asked for a price break, there would be a discussion of value (issue #1).  If the customer still wanted to discuss price, Smiley would discuss lower priced options (see below for more discussion of issue #2).  If the customer still complained about price, Smiley would ask “What price do you want?  And if I gave you that price, would you sign today?”  Note that you don’t actually have to give them the price they want.  You just want to know if price is masquerading for something else.  Maybe they don’t really have budget.  Maybe they are trying to “lock in” a good price for the future.  Maybe they want to use your quote against another vendor.  Find out, but don’t commit to any discounts until you know if that’s really the problem.  If they want a price break, ask for something in return.  The best thing is to reduce the scope of the project.  If this is not practical, ask for payment upfront, early payment, a video testimonial, or something else that shows both parties are collaboratively creating and sharing value.

Now that we knew we were not going to just start throwing money at risk, we had to address customers’ concerns with hourly rates.  There are a few projects that were standardized enough that Smiley could do them on a fixed fee basis.  Smiley raised the price of these.  Some work still had to be done hourly, however, and Smiley’s owner had trouble quoting her rates confidently.  She sounded almost apologetic asking for money.  If you want to be a premium provider, you have to give a premium experience, and that includes quoting your rates and prices very confidently.  If you walk into an Apple store or a Lexus showroom, you won’t find salespeople apologizing for the price.  They simply quote it.  And if you say “but I can get a PC for half the price”, they can talk to you about why their offering is better.  You can agree, and buy it, or disagree, and go elsewhere, but they aren’t going to sell you the Mac at the PC price, or the Lexus at the Honda price.  When you are confident about your pricing, that shows that you’ve been around the block a bit and increases the customer’s confidence in you.  So the whole idea on issue #1 was the simply quote the price.  (She practiced in front of a mirror.)  If customers mention cheaper competitors, never apologize for your price.  Explain that of course they are cheaper, because of x, y, and z (in this case, because Smiley used industry veterans and competitors used recent college grads).  Note that the customer still has a choice.  They may decide that cheaper is better for them.

Before you let them go, though, let’s get to issue #2.  Rather than simply discounting, especially when benchwarmers are burning a hole in your cash reserves, think about some ways to transform the project to make everyone happy.  Maybe the company really wants to go with you, but simply doesn’t have the budget.  You can break the project into smaller chunks and do them sequentially.  Or perhaps parts of the project are mission critical and others are on the checklist but not really as important.  Smiley’s battle plan for price objections therefore included ways to change the scope of the project without undermining pricing integrity.  In addition, Smiley developed ways for customers to save money on non-urgent projects.  Smiley developed a retainer plan and offered discounts for work with more distant deadlines.  This way customers could save money by planning ahead, and Smiley benefited by doing work in time slots between more pressing projects.

How did it go?  Smiley’s owner has not discounted outside or her defined plan, or lost a deal.  Her passion is back, and she added “actually having a pricing plan paid for my new patio.”

Have a pricing battle plan ready, so that in the heat of the moment, you can simply execute your plan.  Small business owners who have done this report less stress, faster deal closing, and higher margins.  Why?  Let’s look at two examples, one today and one next week.

First, a software company selling to other business was trying to figure out how to respond to quote requests based on number of users and other parameters.  Each time they got a request, they tried to figure out what they needed to do to win the business.  Since price was the most obvious lever they had, they spent a lot of time and energy debating the right pricing and discounting.  This led to an over-emphasis on discounting, and an under-emphasis on other aspects of the solution, which were often much more important to the customer.  In many cases, they offered discounts preemptively and unnecessarily.

Then they put together a plan.  The software would cost $X per seat, with volume discounts available at certain quantities.  They defined additional discounts if customers would commit to certain contract lengths, or if they would pay up front.  This tied discounts to exchanges of value, rather than just giving away money.  All quotes would come from this plan.  (See software to automate this pricing process.) Sounds great until customers push back against the price, right?  The CEO new this would be a problem, so the plan defined what would happen at this point.  First, rather than just discounting, the sales team would try to understand if price was really an issue, or just fishing for discounts.  (Many of us have trained our customers to do that.)  Then they would explain the value to the customer.  If there were still price objections, and the company still wanted the business, they had a predefined threshold for additional discounting.

What happened?  Most companies just took the quoted price.  A minority pushed back, and most of them were happy with the additional value conversation, and/or taking advantage of the predefined discounts.  Only a handful went to discretionary discounting.

By having a plan and having confidence in it, sales increased, stress decreased, and margins went up over 20%.

What’s your pricing battle plan?

From a pricing perspective, Amazon has done a nice job of filling various nitches, from the $79 basic Kindle (with ads–oh, sorry “Special Offers”, $109 without), to the $99 Kindle Touch (with ads, $139 without), to the $149/$189 Kindle Touch 3G and the $199 Kindle Fire. $99 and $199 are “magic” price points, that tend to increase adoption of electronics devices faster than slightly higher price points.

So is the Kindle Fire an iPad killer?

First, it’s worth noting that Amazon has already had a lot of success with the Kindle as an ebook reader. They are committed to this market, unlike some other entrants. They have great content to provide a compelling experience, and can take advantage of their cloud storage expertise to sync everything to the cloud, while saving costs by only providing 8GB of onboard storage (they do have a USB port). And for people who mainly want to consume media on this device, the price is compelling. (Note that for reading, the black and white Kindle’s are far superior to the more expensive color screens on the Fire and the iPad, both on the eyes and on the battery.) Much of the rest of the Fire experience will depend on the depth and quality of the applications available, an area where Apple has a huge lead. Apple also provides more storage, camera(s), and microphone– so if you want to make voice or video calls, the Kindle is not for you.

There are all kinds of feature/benefit comparisons you can do to find out which device, or any, would be better for you. But the pricing and user experience differences are born of the companies’ different approaches. Apple makes money from selling devices, and they have a huge software and media ecosystem around that to provide a good experience (and which now makes what most companies would consider a good deal of money). Amazon makes money from people buying content, and they sell devices as a means to encourage content purchases. Indeed, it is thought that Amazon is losing money on each Kindle Fire sold. What is right for one company may not be right for another. Both Apple and Amazon do a great job crafting a pleasant (valuable) user experience, and they price to their target market. While there is considerable overlap, there’s also a lot of differentiation (and a lot of people who already have both an iPad and a Kindle).

To draw lessons to apply to your business, you don’t have to attack another offer head-on. Take what your customers will care about and design the experience and the price around that. Amazon has done that, and that’s why their tablet effort will be much more successful than more traditional electronics manufacturers who simply tried to copy the iPad while adding a few more features or charging less money.

At this point, you’ve done the hard work.  Hard work meaning that it’s hard to go back and change it.  So you’re stuck pricing what you created.  The typical train of thought goes like this:

Product > Cost > Price > Customer

Now when you get to the customer, you don’t know if you’re delivering the right value, making it harder for sales and marketing to find prospects and close sales.

Imagine instead if you had started with a customer problem.  You could then figure out how customers tried to solve that problem today and how much better, if any, your solution would be.  How much would it be worth to the customer?  Given that value, can you product the product or deliver the service profitably?  What might you have to change?  At this point, it’s easy to change, because you haven’t done the hard work yet.  This train of thought looks like this:

Customer > Value > Price > Cost > Product

How do you think about price and value?