Losing on Price
Ask a salesperson why he lost a deal and the answer is often “price.” Let’s stipulate that is true. It is still only half the story. If you attach enough gold bullion to your product, the value would increase to the point where the customer would pay your price.
When you lose on price, it really means that you didn’t deliver enough value for the price. Both sides matter.
To avoid losing, you can do two things: lower your price or increase the value you deliver. Lowering your price is usually a horrible idea, so how can you increase value?
Create more value by improving your product. You can add more capability, more features, more services. However, these additions must be valued by your market or you still won’t win at your price. Talk to your market to be certain what you are adding matters to them.
Communicate your value better. You could have the best product in the world, but if your market doesn’t know it, you won’t get paid for it. Communicating value is the responsibility of both marketing and sales. Marketing communicates to a market, sales should be customizing that communication to individual buyers.
If you do a fantastic job at creating and communicating value, then you will win more customers at higher prices. That’s the goal. Yesterday on a plane I was sitting next to a CFO. She said, “We almost never lose a sale once we can communicate our value.” First, I love the attitude. Communicate the value! Second, they should RAISE PRICES. If they never lose deals on price, they aren’t charging enough.
Let’s do a little math. If you currently never lose deals and you choose to raise your price 10 percent, you could lose one out of 10 deals and make the same revenue. (You probably make more profit if there is any variable cost to your solution.) However, if you were never losing deals, you probably won’t start losing deals at 10 percent more. What if you raise prices by 25 percent and now you start losing 10 percent of your deals. Excellent. You made about 15 percent more revenue.
As a rule of thumb, if you aren’t losing 10 percent of deals based on price, you should raise your prices. Of course, there is an emotional cost to losing deals, but we have to get over it. We are in the business of making money. Not losing deals is a clear indication you are leaving money on the table.
So what did we learn? We have to raise prices so we lose some deals. And we have to raise value to stop losing deals. My recommendation: constantly do both. Drive up both value and prices to the best of your ability.
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