“Get tight on positioning your pricing. And when you do the entire negotiation, the whole game will change.” – Todd Caponi in today’s Tip 1532
how do you price your product or service?
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Scott Ingram: You’re listening to the Daily Sales Tips podcast and I’m your host, Scott Ingram. Today’s tip comes from Todd Caponi. Todd is the author of The Transparency Sale and The Transparent Sales Leader. Todd is a multi-time C-Level sales leader, a behavioral science and sales history nerd, and has guided two companies to successful exits. He now speaks and teaches revenue organizations and their leaders on leveraging transparency and decision science to maximize their revenue capacity as Principal of Sales Melon LLC. Here he is:
Todd Caponi: Hey everybody, Todd Caponi here. Have you ever run a marathon? I haven’t. I tend to run best when chased. But people that run a marathon, it’s not like they wake up one morning and they’re like, You know what? It’s a beautiful day outside. I heard there’s a marathon going on. You know what? I’m going to find my gym shoes and I’m going to go run in it. If they did that, their toenails would probably be popping off by nile number seven, right?
Well, a marathon is an event, but it really is a process that begins way back. The reason that I call your attention to that is I view negotiation in much of the same way. So often, we view negotiations as an event, something that happens at the end of the sales process. But it’s really all about the foundation that you build way out ahead of time, really from the first discussions you have. And specifically, when a company or a customer asks, How do you price this thing? Your answer means everything.
When I’m doing prep calls with leaders as I’m going to get ready to teach a negotiating workshop, I ask the leaders, How do you price this thing? Oftentimes, the answer is really murky. A couple of things pop out of that for me.
Number one is, I still don’t understand the answer. I’ve got to ask multiple times to really dig into it.
Number two is, if the leaders aren’t clear in articulating that, then there’s no way the reps are.
And number three is this idea that confidence is contagious. And if your pricing is murky and mushy and malleable, it probably means that me as a buyer, I’m going to have quite an opening when it comes time to negotiate to really push this thing.
So a couple of pieces of advice here.
Number one is when somebody asks you, how do you price this thing? Do you have a clear, confident answer? And it really has a couple of components to it. Number one is that every for-profit company in the world, your pricing model at its core is probably driven by some volume component. What is it and what is the volume component that drives it and its price? And by volume component, most pricing is based on users, licenses, locations, modules, facilities, whatever. But there is some volume component, and with almost every organization, the more you buy, the better it is on a per unit price.
And number two is the assumptions. Assumptions meaning your pricing is based on what? I would argue that every for-profit company’s pricing is based on when you pay. A lot of times it’s net 30 upfront annual and how long you commit, a minimum one-year commitment, or some commitment therein, whether it’s products or services.
Then number three is expectations. Expectations meaning set an expectation or a range up front as to what they are probably going to need to think about and invest. Because if you’re talking about a six figure solution to a four-figure buyer or vice versa, what if you’re using the wrong discussion?
Let’s put those three pieces together.
Let’s say you’re selling a technology solution. The customer says, How do you price this thing? Your answer should be very clear with the core, with the assumptions and the expectations sounding something like this.
Our core pricing model is a per user type of environment. The number of users that you’ve got on the solution drives the price and the more that you commit to, the better that is. The per-unit price goes down. Now, our pricing model is based on an assumption of upfront annual net 30 payments and a minimum one-year commitment.
Now we go to expectations. Based on our core understanding of your environment and your outcomes that you’re trying to achieve, an investment like yours is probably going to be between X dollars and Y dollars. And if we’re way off on that, if that’s not what you’re expecting, let’s talk about that now. What ends up happening is confidence becomes contagious. When the actual negotiation happens, you’ve set that foundation for everything they could possibly ask you. Whether it’s it’s too expensive, you’ve already set the expectation. Whether it’s, hey, we need net 60 payment terms, you’ve already set that expectation and you’ve got the ability to trade that. Or we need a termination for clause or we need to go month to month. All right, well, your pricing was based on one year.
What you end up in the end is a transparent card space-up approach that builds trust to the goal line, that makes your deals more valuable. When you introduce another layer, which is predictability or alignment around timing of the deal, your deals become more predictable, too.
So get tight on positioning your pricing. And when you do the entire negotiation, the whole game will change. Give that a try. And I would love to hear from you and get your thoughts on it. You’ve got questions, reach out. All right. Good luck. Thanks.
Scott Ingram: For more from Todd, including the video version of this tip, just click over to DailySales.Tips/1532. Once you’ve done that. Be sure to come back tomorrow for another great sales tip. Thanks for listening!