The Price is Right?

That’s highway robbery!!”

I know that you’ve heard this complaint (or something like it) before.  Everyone who makes a living in sales confronts clients and prospects who are outraged by the prices that we are charging – for whatever product or service we have on offer.

Shockingly, when I ask even the most sophisticated sales people why they charge what they do, most of them say, “Ummm…because that’s what it costs?”

This is not a good answer. 

Do you know why you put on your clothes this morning?  Why you gassed up your car?  Why your face got red when the great looking barista smiled at you?  Of course you do.  So why in the world would you ask someone to buy something—and have no idea how the price for that product was arrived at?

To explain why this is important, let me take you back to our stage and acting metaphor.  Everything about your sales presentation has to be part of a larger narrative.  It has to be a fully fleshed-out story with all the color, highlights, and nuance of a well-crafted tale.

Method Actors know this – and it’s why they develop an intricate “back story” to every character they play.  Even if Robert DeNiro is only going to be on camera for a 90-second role, he knows where his character was born.  He knows where he went to school, when (and with whom) he experienced his first kiss, and how he got fired from his last job.  He even knows what that character plans on having for dinner tonight.  And that’s all for a 90-second role!

The value of this acting narrative is that it produces an incredibly interesting, realistic, and compelling character—even if we only get to see him for a minute-and-a-half.

As an accomplished sales person, you need to do the same thing.  If you leave gaps in your own understanding of the sales narrative, your story and your presentation become far less interesting to watch.  It also becomes harder to reach a principled agreement with your client or prospect.

So how did your company come up with a pricing structure for its products and services??

It’s actually pretty easy to figure out.  Profit margins are reasonably consistent between and across industries – and people mostly agree upon what is a “reasonable” margin.  For the average consumer business, a healthy return is considered to be in range of 10% to 15%.

Successful software companies often have higher margins.  They demand such high returns because of the enormous expense of remaining current in a savagely competitive environment, and the need to pour money back into R&D, support, and acquisitions.

So what sort of return is your company making?

If the company is public, all this information is freely available in their annual report.  If the firm is privately held, company managers and executives have a solid grasp of these numbers as well.  Let those people know you need some rough figures – and what you intend to do with them.

Armed with this information, you can now explain to Mr. or Ms. “Highway Robbery” that your firm is well within industry norms for profitability – which, by the way, is extremely important to them as customers.

Sure, some companies will charge less, and make less.  But what happens to companies that consistently underperform the market?  They get sold and busted up.  They go out of business.  They limp along for years cutting corners.  None of these outcomes serves their customers’ interests.

Of course there are other reasons that your company may charge a bit more than the competition.  These might be:

1.  You hire the very best support/development/customer service/management teams – all of which costs money.  You don’t do this out of a sense of charity for highly compensated workers.  You do it to support and service your customers at the highest possible level.

2.  You plan to grow, add more and better products, and insure ongoing stability.  Your long-term success is intimately tied to the success of your customers.

3.  You have a really cool product!  It’s perfectly OK to charge more for something that is truly better.  Apple products have traditionally carried a premium over comparable products from other vendors.  Lots of people think they are buying better (and cooler) merchandise – and they are willing to pay that premium.

Armed with this information, I want you to promise that you are going to learn why your company charges what it does – and that you are never again going to be ashamed or embattled because of it.

Your sales performance will be vastly improved, your customers will be better informed and everyone will feel more secure that a fair deal has been reached!