You Might Not Want the Sale If You Can’t Protect Your Profit Margin.
Anytime you’re selling, you’re trying to balance the price you’re asking for with the amount of value you’re providing your customer. If you want to get the highest price possible, for instance, your goal is to convince your customer of the amount of value they’re getting in exchange.
But we’ve all found ourselves in the middle of a price negotiation when a client is insistent on paying less than you’re asking. That can prove to be challenging, especially if you are offering high-end premium products or services. In other words, you find yourself dealing with a client who wants all the bells and whistles, but is willing to pay only a discount price.
What do you do?
It turns out you have two strategies you can consider: Don’t do business with that client or take away value. Let me explain.
Don’t Do Business With That Client
If you talk to any good salesperson, they think everyone is a good client. But as CEOs, we all know that, strategically and financially, some clients are better than others. What makes a client great is when they are willing to pay the price for the value you are offering. But if you run into an extremely cost-conscious client, and they refuse to pay your asking price, it can make sense to turn them away altogether–as difficult as that might be. That’s especially true if the client asks you to quote them a price that might lose you money on the deal. That should almost always be easy to turn down.
On the other hand, if you find yourself needing to close the deal for various reasons, like trying to hit your sales numbers, there is another strategy to consider.
Trade Value for Price
Whenever you face a tough price negotiation with a customer, giving them a lower price can be tempting to avoid conflict. But I caution you against that. If you want to quote your customer a lower price, you need to take away some of the value in return.
For example, let’s say part of the product program you sell involves both pre and post-installation services. If your customer wants a lower price, give it to them and let them know they won’t get the installation services as part of the deal.
Their reaction will tell you a lot. In many cases, you might find that they want those extra services–which nudges them to pay your full price.
Protecting the Bottom Line
But even if they decide to take the lower-priced deal, you’re also protecting your margins because you’ve subtracted some of the costs from your end. While you’ll add less to the top line than you hoped, you’ve also ensured you’re not losing money on the deal.
Another example comes from when I was running a telecommunications company. We had a customer for which our technicians installed and maintained 100 offices spread around the country. At some point, the customer pushed back on our pricing. We said OK, we’d sell the products, and you can use your employees to install and service them. That’s when the client did some math and realized that, because they had a union workforce, it would be far more cost-effective to pay our full price tag instead (which we knew all along).
Don’t Be Afraid to Walk Away
Now, if you run into a client who insists on getting that lower price and they want all the value-added work, it might be time to walk away. A lower price needs to come with less value.
In the end, the responsible thing to do with your business is to never give on price without taking away value.