All too often, as sales people, we find ourselves in a position where we feel like we need to defend the price. Impulsively, we want to know, even though we’ve been told a number of times to “never justify the price”. Knowing what we should do, and executing and doing it are two different things. How do we move forward without defending our price?
The answer comes first and foremost from our mindset, then from actions that we choose based on that mindset. We can’t DO the right thing on a regular basis if we don’t THINK the right way. The wrong thinking that clients often try to push on us involves making our services or product a commodity and removing the human skill element of what we do. A hammer is useless if you don’t have the knowledge to use it correctly.
I recently saw an old post that reminded me of this concept. The exact numbers and ratios may be a bit off, but the point is still valid.
– Take an iron bar that weighs 1000 grams. The raw value is around $100.
– If you make horseshoes from that bar, its value would increase to $250.
– If, instead, you decided to make sewing needles, the value would increase to about $70,000.
– If you decided to produce watch springs and gears from the iron, the value would increase to about $6 Million.
Your sales value is not just in the iron. It is in what your skill and expertise can make from the iron. Stated even more precisely, the real value is based on what it would cost the client to duplicate the result. If they already had the expertise to make sewing needles from a bar of iron, they wouldn’t be talking to you about buying some.
Back in 2007, I started a small side project called Flavor of Seattle. I produced a restaurant membership card to local restaurants in the Seattle area. The card cost $50. It was valid for $25 off $50, once, at 20 different restaurants. That means that if you used it completely, you were saving $500. The participating restaurants also offered additional “members only” promotions throughout the year. I was talking to a big car dealership group in Seattle that was considering buying a few hundred of these as gifts for their customers. While negotiating, the GM asked for a better price, stating that I was asking for $50 for a plastic card that cost me $1.25 to produce.
Yes, the plastic material was worth $1.25. That was true. What the plastic card unlocked in terms of value though, was over $500 a year in dining value. Now, if you don’t like to eat at restaurants, then the card has zero value, not even the cost of the plastic.
The same argument applies to Sales Fix. I never quote an hourly rate for my services. The hour of time means nothing. It’s the commodity of time. If I can teach 10 of your sales reps to convert 10% better on their proposals, adding 100 more closes a year, and each close is worth $5000 in profit, then the value math is 100 x $5000 = $500,000. That value is true regardless of how many hours it takes me to accomplish the task of training the sales reps.
Only three things should matter to my clients:
1 – What is an acceptable ROI for them? (eg, 10/1 ROI target would mean I could charge $50,000 for that hour and meet the ROI goal.)
2 – Do they believe, based on evidence, that I can actually deliver that result?
3 – Is my price reasonably priced for the market and demand? In other words, can they find someone else who can deliver similar results, and is their price comparable?
“Never defend price.” is incomplete advice.
“Never defend price. Instead, find the real value.” is what you should apply. That is a shift in THINKING, that can then guide everything you say and do during negotiations.