July 5th, 2010 6
Stop Negotiating
How many times have you prepared a proposal or quote with terms written for negotiation? If you artificially increase your pricing just so you can lower it to make the customer “feel good”, you’re wasting time and tarnishing your brand. Stop it. Now!
At FireHost, we do not negotiate pricing with prospective clients, and here are a few reasons that I strongly believe you should not either.
Negotiation Kills Precious Time
During a sale, I want every minute, every word, and every thought to foster value for the buyer and seller. When the conversation turns to price, attention is redirected to a detail that doesn’t really matter. Now, I’m not suggesting money grows on trees or that you should spend recklessly, however if all eyes are on price, it’s easy to lose sight of the business need. When the conversation is derailed, services are misconfigured, requirements are shortchanged, and that’s just the beginning of the downward spiral to disaster.
Negotiation Degrades Your Unique Qualities
If you’re good at what you do, defend it. Don’t degrade it. When a prospective client’s decision is based largely on price, give the client one more minute of your time (but not a second more). In that minute, adopt a very deliberate dialogue. Try something like, “Our pricing is $____, and here is what’s included… ______. Any questions?”At the end, you’ll know if the relationship can move forward, or if you can move on to more lucrative endeavors.
It’s easy to forget that money IS time, and that’s exactly why you won’t catch anyone who works for me saying, “What are you looking to spend?”, or “If I lowered our pricing to ___ would you buy today?”, or the classic “Let me run that up to my boss for approval.” It’s just a bunch of run-around, time-wasting crap. If a prospective client doesn’t “get it” when you elaborate on your unique features and benefits, reallocate your time to one who does.
Negotiation Convolutes the Financial Model
Revenue forecasting is obviously based on sales numbers. Flexibly negotiating each deal can cause huge price swings. Your team constantly struggles with calculations to determine how many more deals must be closed, and by month’s end you could have to make hard choices about who will get overcharged to make up a shortfall. Inaccurate financial plans hurt your business and create unnecessary anxiety at all levels of the food chain.
It’s difficult to accurately forecast with that model, and the entire organization will waste time explaining and justifying the variances.
Negotiation Makes You Look Stupid
Take a few minutes, pick a solution-based service (like managed hosting), and call around with zero intention to buy. Waste the sales person’s time and negotiate with them just to see what kind of “amazing” discount you can get.
You will quickly forget who you were talking to and even what is unique about what you are buying. The entire conversation will focus on price. Is this the best light in which to portray your business to prospective clients? Probably not. Why? Because negotiating parties just sound dumb. Here’s a weird, one-minute video that clearly represents what I mean.
Instead, Practice Transparency
I’ve spoken at length with sales staff from other companies, and you wouldn’t believe the games they’ve designed to close deals. Some companies even want customers to think, “I really got a great deal! They’re losing money on me.” Yeah. Right. If you believe that, come see me about some ocean front property in Arizona.
FireHost offers secure, managed hosting. For every product we offer, our team knows exactly what price is required to sustain a healthy company. And guess what? That’s the price we charge.
We’ve taken great efforts to simplify our entire offering and publish our pricing online. I’ve yet to find another company in our space to publicly show their pricing this way. This is a HUGE competitive advantage for us. Sure, we may lose a few (unqualified) leads because we allow prospects to configure a hosting solution online, but I’ll take organic “weed out” over a huge staff of sales engineers preparing obscure custom quotes that will never get by the bottom line.
Transparent, fair pricing has allowed our staff to spend quality time with qualified prospects and increased our team’s productivity over 10x. I strongly suggest you stop negotiating now, and reap the benefits by year end.
In Business PERMALINK Comments [6]
Great post! Negotiation is such an instinctive trait. Between the desire for the “win” and not wanting to leave money on the table, it’s so easy to take that approach. But you’re exactly right. Keeping negotiation out of the mix allows the service, solution, and unique differentiators to remain the topic of conversation. When the focal point is price, you’re just selling a commodity.
“Let’s do this again sometime” :)
Couldn’t agree more. A lot of time is spent (especially in IT consulting) trying to make something sound good, rather than trying to build something that *is* good. When you have a solid product, it speaks for itself.
This is a very important to businesses of all sizes — especially freelancers. When you’re just getting started, it’s easy to drop prices at the drop of a hat as soon as someone asks, but it cheapens the entire experience and sets you into a bad habit that is hard to climb out of. Great post. Thanks!
Yes. Before FireHost we had a high-end web development company. I focused the money talk on terms of Investment not budget. Even in our proposal, I didn’t have language like “Quote” or “Estimate”, I had “Investment” so the client would get in that mindset when seeing a proposal. If you’re not doing that, adjust and you will see a different attitude about it.
Thank you for your comment.
If you believe in your value then you should never have to settle for less. Wise words here Chris.
Great article Chris! It is a tough strategy to go by in this market. But I do feel the quality of clients and financial health of the company will be much greater in the long term.