5 Most Common Price Negotiation Mistakes
Posted by Geoff Alexander on Mon, Jan 12, 2009 @ 02:41 AM
Now that the year-end has closed, lots of my customers are reviewing the numbers, their sales processes, and discussing new ideas in overcoming sales objections. Whenever a month, quarter, or year comes to a close, many reps are trying to close important business, and invariably negotiating on price becomes a factor in getting the prospect to agree to a deal. Superior negotiation techniques are always critical. Putting on my inside sales consulting hat for a moment, here are the top 5 mistakes that salespeople typically make when entering into price negotiation discussions:
1) Not building value. You've got to fully understand the value your solution brings to the prospect's business. If you don't, the prospect will have all of the negotiating power. I've written a great free whitepaper on selling by ROI that provides terrific sales techniques for getting the right information from your prospect. If you haven't read it, please do.
2) Starting negotiations with an already-discounted price. Why give up something when you don't have to? If you've correctly ascertained the value of your solution (see #1 above), you never have to begin with a discounted price. Always start at full price.
3) Negotiating more than one price drop per deal. A common mistake is to negotiate a price with the technical buyer, then having to negotiate it all over again with a financial buyer. The financial buyer will almost always try to grab a 10-20% discount (he or she is often "comped" on it), so be firm, and tell the financial buyer you've already negotiated a final price. If the financial buyer persists, call the technical buyer with whom you already negotiated, and have him of her (or the appropriate VP) fix it for you.
4) Not having a "drop dead" date to agree to your price adjustment. Price negotiations can carry on forever if you don't provide a date in which your offer is no longer valid. This assists you in delivering a "fear of loss" close, and also prevents the prospect from asking for the same discount for a later transaction at a later date. You'll also need to provide a good business reason that your discount offer will end on a given date. There are loads of good ones, beginning with "We're agreeing to this right now because we need to close more business this quarter. When the quarter closes next week, the offer will no longer be open."
5) Not having a "walk-away" price point. You should never agree to a price that represents a financial loss for your company. Even a million dollar deal can represent a loss if enough company resources and solutions are "given away." Most sales reps are commissioned on gross sales, so it's tempting to grab a sale, even if it makes no financial sense for their companies. Know in advance of negotiations what your bottom-line price is, and hold the line. Savvy financial buyers will always try to go for an extremely low price, and will sometimes even hang up on you when you hold on price. This is a usually a negotiating tactic, and you'll be on top of things if you understand the value proposition discussed in item #1 (above).
These are just a few of the common mistakes I address in my Negotiation Skills telesales training course, but they obviously hold true for field sales reps as well. Add these inside sales tips to your Best Practices playbook, and you'll have more fun in the exciting world of price negotiations. And if you have your own favorite negotiation mistakes, blog me!