When I talk to commercial leaders they frequently focus on the issue of margin. And that’s not surprising – arguably, it’s one of the most important ways in which businesses can protect their profitability, long-term growth and ultimately marketplace survival. Without healthy margins, profitability drops. Without profitability, no business has a future.
But although those same leaders understand that protecting margin is key to success – and survival – they also recognise it’s often one that their sales and business development teams struggle with.
All too often I hear comments like these…
‘We’ve a lot of competitors who are selling lower cost – and lower value solutions which means that more and more customers are only focused on price’
‘Some of our people give in at the first sign of trouble’
‘Our people can be too quick to give discounts – it’s almost their default position’
‘Buyers are getting more and more skilled in negotiation and they run rings around our sales people’
There is no doubt buyers and procurement professionals are increasingly skilled negotiators. To be successful, sellers need to up their game too!
Let’s start with the 3 most frequent mistakes that in my experience – whatever the industry- sellers are making, but which are easily avoided.
1. Giving in too soon
Many managers tell me they are regularly requested to sign off on special customer discount deals. When they ask “why”, the standard answer is – ‘because our competitors are doing it’. But when they ask their sales person a few more searching questions, it often turns out the seller didn’t ask – but assumed.
Perhaps you recognise this scenario?…
Customer: Is there any way you can come down on price? You are more expensive than the other bids we’ve been looking at.
Salesperson: (They’ve got other, cheaper bids. Oh, no! I’m going to lose this deal to the competition.) “OK. Let me get back to my manager, and see what I can do.”
You’d be surprised how often this happens. In fact, I know of more than a few customers who use this strategy regularly use to obtain discounts. Just hinting at cheaper, competitive offers can be enough to send sales people into a tail spin and reaching for discounts to ‘save’ the deal.
Top negotiators do this:
Don’t panic! When faced with objections from a customer, resist the urge to go on the defensive. Instead, ask some questions, or simply remain silent for a few seconds to give yourself time to think. The key is to explore the real situation before jumping to action.
Don’t be afraid to ask the customer for more information.
- How many other bids have you received?
- Are the offers equal in term of real business value?
- What would you be willing to exchange in return for any movement in price?
And probably the best question of all – “if price were taken out of the equation how would our bid compare?”
2. Poor preparation
Lack of preparation before a negotiation is a sin – one which sellers will pay for dearly! Without sound preparation, a canny buyer will force you to focus purely on price – the slippery road to discounting and loss of margin.
Top negotiators do this:
Ahead of the negotiation prepare your own ‘shopping list’. What would you like – and which has real value for you – which is not already in your proposal? In other words, counter-concessions you can ask for in return for any movement in price. This might include asking for different payment/invoicing terms, faster/slower delivery timescales or even a reduced package with similar impact. A pre-prepared shopping list means that you can trade rather than concede.
3. No fall-back plan
Walking into a negotiation thinking you cannot walk away is one of the main reasons for low margin deals being struck. Unless you can visualise yourself walking away from the deal, you’ll have no choice – or at least feel that you have no choice – but to give in to demands for price concessions.
Top negotiators do this:
Before entering any negotiation, make sure you have a clear ‘walk away option’ – known as your BATNA (your Best Alternative To a Negotiated Agreement).
Think of at least 1-2 alternatives if you are unable to agree a deal. What will you be walking towards if you can’t get an acceptable deal with this customer?
- Focus more time on other prospects
- Allocate scarce resources to other customers.
- Preserve your brand and reputation – no one wants a reputation for rolling over too easily on price!
Having a strong BATNA can increase your options for during a negotiation, increase your confidence and send a clear signal to your customer that you are willing to negotiate – but not willing to simply roll-over on price.
You’d be surprised how many times I’ve heard sales leaders bring up these three margin negotiation mistakes Yet, taking a few simple steps can mean the difference between consistently giving in on price or obtaining a healthy and profitable margin for your business.
Find this useful?
Greenbank are an established global Performance Consultancy, specialising in Sales, Negotiation and Leadership practices. We help clients, from top 5 consultancy firms, to high tech start-ups, quickly develop industry-leading capabilities and then become self-sufficient.
If any of the points in this article resonated with you and you would like to know more – then give me a call on +44 (0) 7812 074359 or email me at firstname.lastname@example.org . I’d be delighted to have an informal chat about your business.
You can also download our latest Value-Based Sales Curriculum.