The Price is Right
In 1985, a young window salesman was sent to Columbus, Ohio, to negotiate a contract of $275,000. His supervisor had commanded that young salesman to come back with the order and allowed, if necessary, that the salesman had the latitude to adjust the price by as much as $25,000. The very inexperienced young salesman walked into the office and met an intimidating purchaser who quickly exerted pressure for a reduced price.
The salesman, sensing that he would not get the business unless he caved to the demands of the prospect, quickly gave up $25,000. I know this story to be true because I was that young salesman.
In retrospect, I realize that, as a manufacturer quoting a contractor pricing on a direct sale with no middleman, the price I was sent to offer was probably very competitive. But I panicked and focused on making the sale at any cost, without considering the long-term implications of my poor negotiation skills.
Shift ahead a quarter of a century to the Monday morning quarterbacking I regularly receive now from attendees at seminars, many insist–rightly so–that I probably left $25,000 on the table. But at the time, I felt that I had little choice; that was inexperience talking. My question for the Monday morning quarterbacks, the very same salespeople that are complaining about the price reductions they must make as a result of combative price negotiations, why is it any different for them?
Salespeople complain relentlessly that they “other guy” is quickly underbidding the price and destroying the profit margins in the market. Yet when asked, no salespeople ever think that they are the ones that unnecessarily reduce prices or that they are the “price” salespeople. Just like me as the young salesman 25 years ago, the one bringing down the margins is always the last to know.
In these challenging times, rather than quickly succumb to the negotiation pressure that you inevitably will face, do these things to help your position in negotiations:
- Prospect aggressively. Create an abundance of opportunity in your territory and within your organization, and you will feel less victimized by combative price negotiations. Choice creates power, and the abundance of prospects in your sales pipeline will give you strength in negotiations. When you have many prospects, you still might not like losing a sale, but at least you’ll walk away knowing you have more alternatives to replace that lost one.
- Understand that margins must increase, not decrease, especially in today's market environment. Salespeople who make sales at any cost are beggars. They focus on sales volume to the detriment of sales profit. As sales volume is reduced, a sales leader recognizes that operating costs have not gone down. Cutbacks in personnel can ease the burden on any organization, but the fixed costs of land, machinery, and overhead remain fixed. As sales decrease, fixed costs take on more significance as a greater percentage of business.
- Don’t put problems off on your vendors. Many salespeople and managers instinctively turn to their vendors for price reductions. This practice is really nothing more than a transfer of bad selling skills. When the salesperson can’t hold the price, he turns to the sales manager who, in turn, pressures the vendor representative. The vendor representative asks his sales manager for a discount, and the cycle of bad salesmanship continues. At some point, someone has to tell the customer, “You have the best price. It’s a great price.”
The only way you know you have the best possible price is when a salesman tells you there is no more room to move. In fact, one of the best ways to achieve peace of mind as a buyer is to hear the salesperson say that the best price is on the table. Give your clients that same peace of mind, and thereby strengthen the profitability of your organization.