Negotiation 101 – Setting Your Price
We all need to negotiate at some point or another, if you are a professional sales person you need to start this early on, long before you ask for the sale or the customer asks you for the best deal.
There are two basic ways to sell something, what I call transactional sales or relationship sales. The transactional sale is a one time deal, you may be able to engage in this type of sale if you are selling your own house or getting rid of the old TV on Craig’s list but if you want to stay selling in a single business for more than a few months, you had better be working on relationship sales. It costs on average 7 times more to sell to a new customer than to an existing one, if you are not working to keep them once you get them you are throwing away money. That is why they say the money is in the list, this applies to every business, be it internet marketing or capital equipment sales.
What price you sell your product for in a transactional sale does not matter, so you can pull off the gloves and push for the maximum price for your house or other item, the only risk you have is loosing the sale. This risk is still great but you only have to manage today’s transaction, “who cares if you screw them over, you will never see them again”. This is why so many people have a bad taste in their mouth when it comes to sales men, (think used car).
The risk of sticking it to a person that you might someday want to sell something else to, really helps you set the price you are willing to charge for your product. The key here is to be consistent. Most company’s set the price or discount that they will offer a customer taking into account three primary things.
- How large is the deal.
- How committed is the customer to continue buying from you.
- How competitive the deal is.
This really needs to be the order that the discount is prioritized in, if your product sells for $5,000 and the deal is for $10 million, you are going to be pretty aggressive in your pricing.
If the deal is for $500K but they are committing to purchase the same amount every month for the next year and a half, you are also going to be very aggressive but you may hold back a few points since you are not going to get all of the cash at the same time. The steady revenue stream has some great benefits, so treat this customer right and the long term relationship will pay off.
If it is a very competitive deal you may have to drop your price to get in the door, but be very careful here, this is where the most money is left on the table not only for this sale but for your future sales with this and your other customers.
If you are in a commodity business you may think that price is your only negotiating point, but there are many other values that you can bring to the table, customer service, on time delivery, financial terms. All of these things should be part of the deal when it comes to throwing in more $.
There are two big problems with selling low to get the business,
- The customer knows how low you will go and is not ever going to want to see the price go up.
- The risk that your other customers will hear about it is almost 100%, and you will have burnt up a ton of your trust with them.
It is very important to have a strategy in place for how you are going to set your price and then be consistent. If you need to sweeten a deal, do it with something other that $, “90 Days Same As Cash”, or throwing in “A Trip For Two To The Bahamas”, (I would buy that one right now).
Next Post “Negotiation 102 – Establishing Your Value”
nice post. thanks.