Price negotiations are coming up and your sales team isn’t adequately prepared. Sounds unrealistic? Not at all. In our experience, more than 50 percent of all companies and sales teams conduct price negotiations without having done the necessary homework to sell more at higher prices.
One of the key drivers behind this dynamic is the lack of tracking metrics for negotiation excellence. While most companies conduct regular benchmarking of efficiency and effectiveness in their different production sites, most companies are not adequately benchmarking the real performance of their sales function.
Is there money in managing price negotiation better?
Absolutely. Here is an example:
In a project for an automotive supplier with more than two billion US dollars of annual revenue, we found out that the top negotiators were achieving six percent higher prices and 44 percent higher closing rates than their peers. However, there was no systematic process in place to compile the knowledge from the top sellers, distill it, and transfer it to the rest of the sales team. In this case alone, hundreds of millions of dollars are left on the table.
Is your sales team well prepared for price negotiations?
This is a difficult question to answer, but we can offer a quick solution. Benchmark your own company against others for free with our price negotiation excellence scorecard.
If you don’t prepare, you prepare to fail
We reviewed our past projects to analyze what makes salespeople successful in negotiating with customers. We found five different dimensions. Let us look at them one by one.
1. Know your power position
Buying centers have invested heavily in enhancing their purchasing power. They excel in minimizing product benefits and maximizing competition. They are experts in diminishing the confidence of sales teams. They know that fear of losing business is a great path to lower prices.
Countering this requires sellers to have a superior understanding of their own power position. What are customer needs? How do customers perceive the performance of their products vs that of the competition? How important is price? What is the value of our products? The best salespeople understand these concepts very early in the sales process and begin to lay the groundwork well before price negotiations ever begin.
A good understanding of the power position will help you to:
- Work on improving your power position.
- Set realistic price targets.
2. Develop best practice selling playbooks
Many companies don’t have best practice sales playbooks compiled. The sales reps often come up with their own techniques and reinvent the wheel with each different opportunity. This is neither efficient nor effective.
In contrast, leading companies task a team of internal and external experts to document the best methods to persuade customers and sell their products at higher prices.
These playbooks support sales reps in:
- Articulating the value of their products and services
- Handling objections
- Employing persuasion techniques
- Structuring a negotiation
- Providing feedback to their peers and teams
The playbooks need to be supported by hard proof for strength and value claims (e.g., references, product tests, value calculators). In B2B markets, a claim of value is worth little without sound proof-points behind it. #
3. Enable your team through training
Negotiation excellence doesn’t come overnight. It is the result of constant and active learning, and this requires training, checks, and rewards.
- Train your sales team thoroughly with regard to customer value proposition, negotiation, and emotional and communication excellence.
- Check how well your sales team knows your sales playbooks and how well they are able to put them into action. Check openly and, if possible, also employ mystery shopping to validate.
- Reward price quality and good negotiation performance via incentives.
4. Manage negotiation campaigns systematically
Convincing customers to buy your products and services can take months when it comes to big deals. Assist your sales team in planning and conducting successful negotiation campaigns. Provide them with tools that help your sales team to systematically:
- Identify and document key stakeholders in the buying center as well as their attitude toward your solution.
- Map the selling center to the people in the buying center. Who is responsible to build relationships with whom on the client side?
- Plan activities to influence the power position, e.g., conduct client quality workshops to improve quality perception.
- Offer Good / Better / Best offer versions to right-size your products and services and promote upselling.
- Establish a central negotiation support team that assists your sales teams and monitors negotiation progress and best practices.
5. Set the right negotiation targets
We always ask our clients’ sales reps to quote a price for standardized projects. And what we get is oftentimes 10 different prices for 10 different quotes. Why? Because the targets are being set based on gut feeling.
But gut feelings are hardly ever optimal. Negotiations are most successful when you back them up with a realistic yet challenging price guidance system. Based on a systematic description of your power position, the right tool recommends starting prices, target prices, as well as walk-away prices.
This helps with multiple aspects of negotiations. Realistic price targets:
- Increase the confidence of salespeople so that they build resilience when defending prices.
- Enable management to compare the price realization of sales reps in an equitable way. This allows them to course correct where needed and to reward where deserved.
Bringing it all together
Selling value and defending prices is not an art, but a craft. It requires motivation and the right techniques. Make sure to get the following 5 elements right:
- Know you power position.
- Develop best practice selling playbooks.
- Enable your sales team through training and check on their ability.
- Manage negotiation campaigns with the right tools.
- Set the right negotiation targets.
And then there is one more thing: Successfully negotiating for higher prices requires a willingness to walk away from the table. Without this willingness, your customers will only ask for more and more discounts. Buying centers are like children. They only stop when you get courageous and stand your ground.
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