Archives For discounting

Stelzl Labor Day Picnic in the Rain!

More decisions are going to purchasing, even when budget seems to be approved!  This means more negotiating…

(Note: Here’s a mushroom picture from our Labor Day picnic in the mountains – forecast; 10 inches of rain.  Lucky for us we had a picnic shelter)

Strategy

Don’t be fooled into thinking you are just there to go through some read tape or that the questions are just part of an informal price discussion.  Large companies (and probably many mid-sized companies) are going to negotiation training – you go to sales training; they attend negotiation classes.  They also read sales books – probably more sales books than you read.

Your best weapon is found in understanding how negotiations work and what is being taught in negotiation school.  They read sales books in order to understand the tactics you use to get people to buy.  If they know what Sandler says to do, they know where you are headed, and will craft their strategy to counter you.  Most discounts are given at the end.  The old Pareto principle – 80 percent of your discounts are given in the last 20% of the sale, which is often driven by dates you must hit to meet quota, accelerators or company goals that affect stock prices.  Managers and purchasing officers are watching the clock, studying the landscape is order to better understand your sales cycles, and your need to close by a certain date.  Once understood, they control the deal.  Michael Bosworth illustrates this with the wringing of the washcloth, squeezing you along the way until the water stops coming.  Tom Hill, a presenter from a resent homeschool conference notes in his talk on negotiations, “If someone gives in once, the buyer knows he’ll give in at least one more time”.  How does it feel to have people know what you’re going to do?

Counter Strategy

How do you combat the year-end squeeze?  In just about every presentation I give at sales conferences and training seminars, I urge sales people to create urgency through the discovery process. Urgency is your best weapon against negotiations.  If something is urgent, there isn’t time to shop. That’s why I love security sales!  There just isn’t time.  But there are other things you can do…

1. Does your client have a deadline – or can the project be tied to some upcoming event?  If there is justification for the initiative, knowing the gains or safeguards your client is reaching for can really help.  If you know it’s costing them to wait, you have an advantage.  Find out – don’t just sell a project, understand why this was approved in the first place and lean on it.  Note, sometimes negotiators will give false information to create a cushion here.  Don’t take one person’s answer as the gospel, especially if they live in IT.

2. Keep your quota to yourself.  It’s none of your client’s business how or when you get paid.  Don’t share compensation plans. This sale should be customer focused – you are helping your customer achieve something, not trying to make your own number.  If they see you hurting for money, they’ll likely take advantage of you.  If they know sales are slow, expect them to push for higher discounts to close sooner.

3. Stand firm – be confident in your solution.  If you focus on the great advice you are giving – if you act as a trusted adviser, you will be less affected by their negotiation strategy.  If they sense nervousness, they’ll keep pushing. As long as you appear to be caving in, they know they can get more.  I was asked by one customer, “What if we don’t buy this?”  Not sure why they asked, but I simply said, “If you don’t buy, someone else will,” essentially I was saying, “Your loss, not mine.”  Any other attitude will give them the advantage.

4. Put away stress – along with the above, manage your stress outside the deal.  If they sense panic, “I must close this deal!” you’ll lose every time. Purchasing agents are looking for signs of panic, and in this economy there are a lot of people panicking.  You can’t afford to panic, so before you make calls or visit, encourage yourself and put aside the emotional effects of not making it.  You can’t negotiate from a position of fear.

5. Always remove value…you may have to bring down the price, but first assess what they need aside from price.  “Price aside, is this what you need?”  I love what Negotiation Expert Landy Chase says, “If they say yes, you know you’ve been selected.”  This puts you in a great position to negotiate, and once they see you are going to lessen the deal when you lessen the price, and are willing to walk from the deal, they’ll stop negotiating.  Do the reverse, and expect to go through this again, every time you sell them something.

© 2011, David Stelzl

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Here’s a great example showing just how much you lose when you discount services or consulting efforts.

Let’s assume you quote a job, fixed price, but calculated by estimating your time.   Here are some considerations you use in your quotation process:

1. Engineering rate: $150/ Hour.  (example rate).

2. Company’s published burden rate: $75/ Hr.

3. Hours estimated to do the job: 8 (one full day)

4. Total proposed price (Fixed Fee): $1200

5. Expected burden cost on the deal: $600

6. Expected gross profit (GP) on the deal: $600

So you put together your proposal and submit it to the client along with whatever products are to be installed.  The client looks at it and figures there’s no harm in asking for some discount.  “How about if we just go with $1000 even?”  Well,  that’s fair.  After all, it’s so close.

Assuming your engineer does complete the work in 8 hours, the client get’s billed $1000.

Looking at the numbers more closely:  That is about 17% off.  Not a huge discount, so you’re not worried.  However, let’s look at the GP discount:

Your fee: $1000

Actual burden cost: 8 X $75 = $600  (Same as above)

Realized GP: $400

Whoa, you gave away $200 right off the bottom line.  That’s a 33.33% discount which is about twice the discount you thought your were giving!  No wonder the numbers don’t work at year end…

© 2010, Dave Stelzl

Will you Walk Away?

November 12, 2010 — 2 Comments

Will you walk?  I’ve been writing about fee setting, and no fee setting series would be complete without facing the reality of a failed negotiation.  If you’re not willing to walk away from the business, you have no business negotiating.  Once the client perceives your willingness to discount, they’ll require it as part of every deal.  Set your fees wisely, being honest with yourself, and your ability, and be consistent.  Everyone knows that car dealers are more willing to negotiate at year end, and that Cisco, HP, Sun, Oracle, (fill in whatever product company you sell) will do the same (Usually at month or quarter end) for any big deal.  Anything to make the numbers work.  So what have we trained our customers to do?  Wait.

Your job is the be the best.  Jim Collins talks, in his book, Good to Great, about the hedgehog.  Being the best, having the passion, and finally the economic engine.  When clients see your value and know your prices are fixed, they’ll stop playing games.  Michael Bosworth, in his book, Solution Selling, explains it like this, Once you start discounting, the client will continue to squeeze, like a wet washcloth, until there is no water left.

What’s the solution.  Be great, be willing to walk, and leave the client wanting you.  Then continue to market to them until they realize they really do need you.   In the long run you’ll waste less time, make more money, and have better clients.

© 2010, David Stelzl

What happens when the client can’t afford something?  Naturally, the conversation turns to dollars and discounts.  “We don’t want to short-cut the solution, yet we can’t afford the price.”  In other words, “It’s not in our budget, but we still want it – what can you do?”  We talked about establishing value prior to price several days ago, but now the price has been proposed, and the client can’t come up with the money.  Or, in another scenario, you have a contract (perhaps recurring revenues through managed services) and the client can no longer afford the level of services originally contracted for.  So what do you do?  Here’s a simple way to get back on track.

“Price aside….”  Money can never become the central issue.  People don’t figure out how much they have to spend and then look for something / anything that will fit the budget.  At least they shouldn’t.  That’s how people end up with a lot of junk they just don’t need.  Instead, set the price aside for a moment and figure out what really is needed.  If money is tight, scrutinize what the client really does need.  Great consulting means improving the client’s condition, not selling more stuff.

So I simply say, “Price aside, let’s look at what we are proposing and figure out if this is really what you need.”  Let the client see the pros and cons, the value and risk, etc.  Ask probing questions such as, “If we cut this out, people will be able to send any type of sensitive company information through email unchecked.  Is that okay with you?”  “If we cut this out your data won’t be backed up off site.  So if someone forgets to run the back up, the tape fails, or the person who takes it home loses it or it gets stolen, your data will be unrecoverable and on the street.  Is that okay?”

Force people to look at the solution, it’s value, the risks and opportunities.  They may still not have the money, but if it’s clearly what they need, at least they will want it, may find the money, or start saving for it.  Discounting is never the right answer.

© 2010, David Stelzl