BY ANDI GRAY AND ROBYN GOLDENBERG COHEN
Dilemma: Our salesperson likes to discount things, especially add-on services, which are a really big profit margin for us. He’s even told some clients we can offer things at cost. We need to fix this now because he’s starting to make headway in sales. Bigger accounts are coming in and we could end up losing a lot of profits, not to mention that they will expect those deep discounts again in the future.
Thoughts of the Day: How much does your salesperson know about how your business makes a profit? Is your salesperson calling on the right class of customers? Equip your team with an effective information-gathering approach. Check that everyone is clear on what the company’s financial goals are. Use reporting to evaluate and learn from results. Make sure there’s a plan to get more referral business from the best customers.
Salespeople need to understand the difference between actual profit and revenue. Understanding gross profit is important because this is the money that the business uses to fund operations after the costs of goods sold has been deducted. When a salesperson offers prospective clients discounts or shaves the pricing, he needs to realize that this also affects his personal revenue (i.e., commission). This is where a deep understanding of the benefits as they relate to the cost becomes necessary in the sales process.
Make sure your salesperson understands what it is you do and how that benefits your customers. Take salespeople on calls to meet your best customers and hear their stories. Have them write up case studies of customers who are raving fans of your company. Assure potential customers that the spend comes with a return on investment—be it monetary, increased productivity, or even just peace of mind—by addressing pain points throughout the sales process.
If you’re concerned about add-on products or services, find customers who will talk about how they have used those add-ons to:
• save time, money, or effort;
• make a greater profit for themselves;
• score a huge impact with their customers; or
• otherwise significantly improve their business.
Make your salespeople true believers in the value and importance of what your company provides. Then start talking with them about how to appropriately price that value.
There are specific situations where offering a discount can be an effective selling tool. There are also times when discounting your pricing can backfire and cause the prospect to believe that your product or service is less valuable—which is most commonly the case when going head to head with competitors pricing far below cost. Offering an ill-timed discount can make a salesperson seem less credible and pushy, and that bond and rapport you’ve worked so hard to build goes out the window.
There are a few ways to avoid this mistrust before it happens. First, don’t offer discounts if you truly believe that your service is worth its pricing. The conversation about budget and pricing should happen early on in your sales process. Learning how to comfortably ask about the client’s budget will set you and your salesperson up for success. Second, if you want to offer a discount, be prepared with the offer/amount before you go into the meeting. This is where educating salespeople on the cost of doing business is key, as they need to know what sacrifices are being made on the backend to deliver on their promises.
Have an upfront contract rehearsed and ready to use if you are offering a discount. This can be as simple as: “Before we begin, I just want to let you know that we’re offering a discount on contracts signed today” or “We’re upping our pricing next week.” Accommodate your friends, family, and staff as you feel is appropriate within your budget. Just be sure that these passengers understand the importance of tipping their chauffeur.
Check that you and your salesperson have the right prospect list. Bottom-feeding prospects will have a harder time seeing the value over price-benefit of your add-ons. Go get more customers who place a high value on the help your business provides to them.
Don’t let your salespeople get beat up by customers who ask for “just one more” discount all the time. After a while, if all the salesperson hears is that they have to cut prices, it can become a self-fulfilling prophecy. Make sure that your prospect list includes buyers who are highly motivated and have the wherewithal to afford what it is you’re charging for your services.
It is okay for a customer to ask you why things cost so much. But a salesperson needs to make inquiries of his own, too:
• “What is most important to you with a transportation service?”
• “What’s ballpark for what you’re willing to pay?”
• “What other options are you considering and how would you compare those to what we’re offering?”
• “What happens if this solution doesn’t meet your needs? How would that make you feel?”
(If they don’t answer “devastated” to the last question, watch out!)
Set goals for more than just revenue. Make sure you and your salesperson are also clear about the number of accounts you expect to be opened, the amount of each service that is to be sold, and the amount of gross profit to be earned. Be clear upfront as to what you expect.
Review results continuously: Recap profitability by customer, by product, and by service. Sometimes salespeople will use high profits on one item to subsidize the sale of another item. Evaluate if you should be mandating pricing, rather than giving your salesperson so much leeway. If you’re counting on a particular class of sales to deliver unusually high profits, make sure that’s how it’s getting sold.
Build a referral plan to help your salespeople get introduced to potential “best” customers. Once satisfied, profitable customers will likely know others just like themselves and be happy to tell them about the experience if asked. It can to reference other customers’ satisfied experiences. [CD0717]
Looking for a good book? Try “Selling Profitably in a Discounted World: 10 Reasons Why Your Business Is Not More Profitable and What To Do About It” by Jim Butler.
Andi Gray is the Founder of the business consulting firm Strategy Leaders. She can be reached at firstname.lastname@example.org. Robyn Goldenberg Cohen is Director of Operations and Marketing for Strategy Leaders. She can be reached at email@example.com.