IMAGINE IT IS two weeks before an important pitch. You are putting the finishing touches to the proposal, but something does not look right. You tell your manager that the price seems high and remind him that you missed out on a recent contract when offering a similar rate. First, there is silence, then comes the answer you did not want: "We need this fee to make the project worthwhile.”
When the big day arrives, you deliver the presentation in a very professional manner, until the discussion turns to price. At that point, you become hesitant, shuffle your notes and find it hard to make eye contact with the client. When their immediate response is "that sounds too expensive", the only thought in your mind is: "I knew it".
But was the pricing strategy wrong?
Sometimes, it is the salesperson's apparent lack of confidence that causes the client to give a red flag. This is a classic case of self-fulfilling prophecy – that term, coined by Robert Merton in 1948, which describes how a person's performance is affected by their expectations of success or failure.
Make sure, therefore, that you have the right attitude when selling a product or professional service, especially one that has no set market price.
A major factor in determining the final price is that you, the salesperson, are convinced of the value of what is being sold. That makes it much easier to convince the buyer.
If you start by thinking the price is too high, you will be already considering possible discounts. You must have confidence in your abilities, the proposal and the offer price. If you don't, you shouldn't be selling.
When businesses buy professional services, the overall cost is a big part of the decision-making process. Clients want to be sure they are getting value for money. They need to know the price is competitive, but they will also be prepared to put things in perspective. When selling, focus on building value for the client.
It can be difficult to create this perception, especially if you are forced to talk about fees before you have the chance to present the full value of your service.
By discussing fees too early, in the first or second sales meeting, clients may conclude that you are too expensive. Once they have that impression, it takes a lot to get them to change their mind.
However, if they are already impressed by your approach and ideas and the benefits your company can offer before talking about price, they will be looking for ways to justify the investment. As far as possible, wait until the client clearly wants to buy, or has heard everything you have to say, before discussing financial terms.
Even when the prospective client is pressing for information about your fee structure, you can deflect the question if you feel it is too early for details. You can say it depends on who works on the project, the scope of the contract and the timing. You can also point out that a precise quote is possible only when you have a full understanding of the client’s requirements.
Be careful, however; you do not want to come across as evasive or to seem as if you are avoiding the issue.
When you think the time is right to present the price, use “the value sandwich”. This entails giving a general description of what you offer, then the fee, and finally a follow-up explaining the additional value you provide.
For example: “For five days of on-site consulting, our rate is $250,000. This includes our initial meeting with your management team to assess the project, all out-of-pocket expenses, the final report and a debriefing session to present our findings.” By presenting your fees in this way, you are showing the full value of what you offer.
However, in some situations, clients may still say you are too expensive. Accept that, and remember the client's job is to get the lowest price and the maximum return.
When salespeople are challenged on price, they may react in one of two ways. Either they reduce the rate too quickly – which goes back to the self-fulfilling prophecy about lack of confidence – or they vigorously defend the offer.
This may sound great but can go wrong if done too assertively, or in a way that reiterates what you regard as your strong points. For example, by restating arguments about quality staff, excellent service, state-of-the-art technology and director-level contacts, you may be emphasising features of less relevance to the client and justifying their views about the expense.
The first thing to do when the client complains about fees is to get more information. Find out who you are being compared to and the details of competitors’ rates. Of course, it will not be easy because the information is the basis of the client’s negotiating position and bargaining power.
However, if you have built a degree of rapport and trust, and if the client wants you to win, they may be willing to open up. Regardless, the greater risk lies in not asking these questions.
Once you have an idea of a competitor’s offer, focus only on the price difference. If the rival’s proposal is $15,000 a day as against your $20,000 a day, concentrate on justifying the additional $5,000. If the extra benefits you offer are not really worth the additional cost, the prospective client has good reason to favour the competitor.
During the negotiation, you may find that the client can accept a difference but not the full $5,000, in which case you may consider a partial discount.
Price will always be an essential factor in any decision to buy, but it is rarely the overriding factor. The challenge in selling is to enhance the value of what you offer the client so that the potential cost of not using you outweighs any premium charged.
To do that, the salesperson must believe 100 per cent in the fee structure.
Otherwise, lack of confidence will show through and result in lower returns for the same amount of work.
TIPS TO WIN
Determining value
Creating the perception of value is not as hard as it seems. It is about understanding the client's needs and motivations and then presenting a persuasive message. Value is based on a combination of factors: the importance of the problem, perceived urgency, benefits that will result, the number and quality of potential alternatives and the business or personal implications of getting things right. When meeting a client, ask questions that build an understanding of these issues. Listen to the responses, position your company accordingly and, over time, you will create a perception of value.
Make them work
The first rule of price negotiations is never to offer a discount unless asked. The second rule is to make the client work for it. If they demand a lower price, try to change the overall offer. For instance, offer a 15 per cent discount but make it clear that this will mean some of the work will have to be done by more junior staff. Fee negotiation is not the same as bargaining, where you try to compromise on a price somewhere between what you want and what the client is willing to pay. It is about trading concessions. Offer a discount, but make it conditional by saying something like: "If I can get you a 10 per cent discount, then we would need 50 per cent of the full payment in advance." In the end, you do not have to be better than the competition – the client just has to think you are.
Put price in perspective
It is easy to develop a fixation about price, especially when potential clients stress that only price will determine who gets the business. Just as often, suppliers get into the same rut. They spend hours trying to guess their competitors’ price point and determining how low they will need to go to win a contract. They face the constant risk of bidding too low and getting the business only to find that it is unprofitable, or of losing a big deal by not discounting just $10,000. Therefore, always put price in perspective and never discuss it in isolation. The primary aim should be to meet or exceed the client’s needs by showing you will go further than any other supplier, and then you mention price. That creates the right perspective. The client knows that the appointed supplier can meet or exceed its needs in every way and that the price represents tremendous value. Price on its own is not the same as value.