Price vs. Cost for Sales People
I was reading an article on Seth Godin’s blog this morning about Price vs. Cost and it got me thinking about how we sell. Most sales people focus on price. I get it, because price is important. Every product or service we sell has a price associated with it. If we step into the WAY back machine I wrote a piece in 2007 about price vs. value where I talked about the price of Starbucks coffee and why people buy it anyways. It was a long time ago though and I have certainly rethought some things over 10 years so lets revisit this topic today.
Thinking About Price
Pricing a product is difficult. Price it too low, you gain sales but you lose out on potential profit per sale. However, if you go the other way and price it to high you gain profit per sale but lose gross sales. There is a sweet spot marketers are trying to hit that maximizes sales and profit. There is a lot of research and math that goes into this, but the first thing we have to realize as sales people is: Not everyone is our customer.
Here is a diagram showing what we are trying to accomplish when we price a product or service:
Category 1 and 2 are not our customer. There are a few on the fringe that we can convert, but for the most part these people do not have the money and can not afford you. Category 4 is the easy sale. This guy loves your product and sees the value. This sale generally closes itself. Where we make our money is the fringe of category 2 and the meat in category 3. So how do we as sales people convert the sale for the guy who is saying we are too expensive? We demonstrate value.
What is Value?
Warren Buffet gives the best definition in my opinion. He states Price is what you pay and value is what you get. It sounds simple, but that is the trick in every sale. We must as salespeople convince our clients that the value we add is greater than the cost they pay. If the customer perceives value its an easy deal, if they are not convinced your product has value you have a tough row to hoe.
How Do We Demonstrate Value?
Demonstrating value is how we solve the price vs. cost equation. How do we do that? By building quality trust based relationships, asking good questions, and showing how our product solves their problems and adds value. The more value we build the easier things are at closing time.
We start early in the relationship by listening carefully to the client. Notice I said relationship. Even if you sell your product in 20 minutes or less you are still building some relationship. The longer your sales cycle the more important this skill is. You need to start out by asking a lot of questions and listening carefully. layer your questions to develop a deeper understanding. Then repeat what you heard in your own words to make sure you have a clear understanding of the issue. Once you are clear you can ask a deeper question or share a powerful feature – interest – benefit check to build value before moving to the next topic. The feature – interest – benefit check is your best tool to build value as you are talking. It allows you to confirm interest and understanding so that when it comes time to ask for the sale they have already told you multiple times how the product will help them solve their problem, save them time, or help cut costs.
Closing Thoughts on Price vs. Value
Price vs. cost is only ever an issue when value is in question. if we do our job as sales people to build solid trust based relationships, ask the right questions and demonstrate the value of our product we will close more sale easier. I know that sounds like a lot, and it is. for some of you it is going to require you to rethink your entire selling system. For others its just going to require some self-reflection and some minor tweaks. Either way it is a change worth making and your customers will appreciate it and refer others to you if you do.
If you are looking for a great book to help you solve the price vs. cost equation and build value I highly recommend Selling Value: Key Principles of Value-Based Selling by Don Hutson. This book goes deep into the issue of building relationships and value and will help you rethink your own processes.
How do you overcome the price vs. cost issue? What techniques do you use to build value and deepen relationships? Leave me a comment… I’ll write back!