It doesn’t matter where you are in the world at the moment, we’re all facing the impact of inflation.
When the cost of providing your products and services is rising, it’s inevitable to pass on this increase to customers to protect your margins. It’s especially important for sales professionals who often work on commission based on margins rather than volume. And, to maintain your company’s equity value, which is calculated on profit.
However, initiating or reinitiating price negotiations can be daunting for your sales team, when they’re constantly on the rise. In a recent poll, only 11% of sales leaders felt their team were ‘extremely confident’ in initiating challenging price negotiations while a whopping 32% said they were not at all. 56% believed their team were ‘fairly confident’.
With inflationary pressures showing no signs of subsiding, now is the time to equip your sales team with the skills they need to navigate these conversations with your buyers.
In this blog we discuss:
One of our clients has had to increase prices 12 times in the last 18 months due to supply and demand issues. Hiking your prices up as often as this can damage your image and your relationship with your customers.
Right? Well, not necessarily – it’s a question of trust. And you need to be honest about whether your customers see you as a partner, fighting the same battles as you, or someone who is purely concerned about their commission.
What systems do you have in place to maintain relationships with new and existing customers? Do you touch base with them regularly? Do you foster ongoing dialogue, which allows you to have honest conversations about upcoming changes?
In the current economic climate, you may have to increase the quantity and quality of those interactions.
Your clients are likely facing the same challenges you are – wondering exactly how much heating bills and other overheads are likely to go up. So, there’s a good chance you can find common ground when it comes to price negotiations. They simply have to know and trust that you are being completely transparent about why your prices have gone up and have their interests in mind.
“Think win-win” comes from Dr Covey’s must-read book, The 7 Habits of Highly Effective People. In this particular chapter, he explains how the “win-lose” mindset stops us from coming up with solutions that benefit everyone involved. We tend to think that someone has to lose in order for someone else to win.
Covey’s point is that in changing our mindset to win-win, we can work together towards meeting everyone’s interests. In business negotiations, that’s the difference between distributive bargaining and interest-based negotiation.
If your sales tactic consists of achieving high price for low value, this may be great for your short-term profits, but it’s unlikely to earn you the trust and loyalty of your buyers. A better approach is to consider your client’s interests and actively look for ways to meet them while maintaining your margin.
A skilled salesperson will be able to demonstrate the right amount of consideration for the client’s interests, as well as the courage the drive the negotiations forward, for a win-win outcome.
To quote Covey: “Win-win is a belief in the third alternative. It’s not your way or my way; it’s a better way, a higher way.” And, this can be achieved through a proven framework for negotiation – Finding the zone of possible agreement (ZOPA).
To find a ZOPA, you must first define your best alternative to a negotiated agreement (BATNA) and understand your customer’s. This is the range of most desirable outcomes for both parties. If both sets of interests overlap somewhere, then you’ve got yourself a ZOPA.
Let’s say, you’re looking to sell your services for £1000, but could accept £850 and still be content with your margin. Your client, on the other hand, would prefer to pay as little as £800, but would go up to £950 if they feel they’re getting value for their money. Then, your ZOPA exists between £850 and £950.
Let’s be clear here – as this is about defending your margin – moving down on price or fee shouldn’t be your go-to, unless the buyer agrees to concessions.
When there’s a change in the fee structure, discuss with your client how this will affect the scope of your product or services. If you offer a discount without any flexibility on their part, it diminishes the perceived value of your product or service. And this can erode your clients’ trust in your brand.
Instead, rethink your proposition and bundle your services to offer the best possible value for the agreed price. In case of a price increase, if your buyer is unable to pay more, you’ll have to agree on a different level of service.
For example, if your company sells bespoke packaging, you could agree to maintain the same prices for a period of time but specify that the design will no longer include embossing. Or, you may have to look into using cheaper materials.
Building trust with your clients always made sense, but it’s even more important in the current climate. Remember to think win-win when negotiating so both you and your customers walk away with the best possible deal. And be creative in the ways you bundle your products and services to maintain healthy margins.
For a more in-depth look at defending your margin in the current context, you can watch a replay of the webinar here.
To talk to us more on upskilling your sales team, please get in touch by emailing firstname.lastname@example.org or call us on +44 (0) 207 653 3740.
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