How many businesses build a cool product, then figure out what to charge for it? How many companies decide what to quote on a proposal after they’ve written the proposal? If you make your pricing decisions then, you are at your most emotional and least rational point, and likely to mis-price (usually underprice) your offering.
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?