Protecting Price & Profits: The Concentric Circles of Value

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Compensating the Sales Force by David Cichelli

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Protecting Price & Profits: The Concentric Circles of Value
By , President, . and Principal, .

By focusing on four key principles you can help your sales reps develop patience, curiosity and discipline.

When it comes to selling profitably, software sales managers and executives are plagued with several reoccurring questions. What are my reps doing to build the value proposition? What are they doing right, and what are they overlooking? How do I teach them to focus on value rather than price? Well, it helps to have reps with the patience of Job, the curiosity of Columbo, and the discipline of Rocky. You can help them develop these qualities by focusing on four key principles.

Principle #1: Pace the Sale
Urge your reps to be as patient as Job. Challenge them to hold their tongues when asked for a price early in the buying cycle. Why? The moment buyers are quoted a price, 85% of them immediately want to shop it around. Once your rep mentions a price, the prospect will automatically try to find a lower one, even though the two solutions may not be apples-to-apples. It looks like this:

The prospect’s natural next step is to ask you to reduce your price. This pressures your rep to concede on price long before value is discussed or calculated.
Instead, teach your reps to pace the sale. Ask questions right from the start that pinpoint the prospect’s pain and what they stand to gain by choosing your solution. Make sure they avoid talking about price until that pain/gain can be quantified.

What you want the rep to begin doing is to create a value calculation to serve as the comparison to your price. If done well, this will prevent the prospect from only having one data point – your competitor’s price – to weigh against your price. The diagram below illustrates what you are trying to accomplish:

Principle #2: Don’t Round Up the Usual Suspects
Your reps need to understand that getting the job done may mean not calling on the usual suspects. Like Columbo, they need to poke around and interview a wide array of players. And like Columbo, they’ll find that curiosity’s often rewarded. A few tips:

Don’t focus exclusively on the IT people. In many cases, they’re order-takers for other departments. They evaluate and install your solution, but someone else buys it and uses it.
Find the order-makers before an RFI/RFQ/RFP is issued. (By the time an RFP is issued, at least one-third of the true buying cycle is already over.) Urge your reps to find the people responsible for the final sign-off. These are the people who measure value in the end and make it possible for you assess the true value of the solution.
Have your reps offer to do some preliminary due diligence for these decision-makers: e.g., all the calculations they’ll need to know as they consider a software solution like yours. The buyer will fall over from shock (as long as you can deliver on the promise).
These are the people your reps will probe. Where’s the pain? How does this decision-maker quantify the loss this pain is causing? Who else in the organization shares this pain and can help further quantify it?
Remind your reps that the fewer people they speak with, the smaller their Value Circle. Suggest they call horizontally across multiple order-maker or user departments, and vertically through several tiers in those departments.
Time consuming? Yes. But it puts your reps in a very strong position to protect price and profits.

Principle #3: Ask Pain/Gain Questions
One of the most valuable things your reps can do is to cause the prospect to stop and think about the implications of solving/not solving the current pain, or capturing/not capturing the anticipated gain.

Buyers think about value in general, but they aren’t usually prodded to think about it in specifics. By asking well thought-out implication questions, your reps turn an abstract situation into a concrete problem.

Implication questions are a powerful tool, and one of the best things you can do for your reps’ professional development is to help them fine-tune this skill. You can brush up with the copy of SPIN Selling by Neil Rackham that’s probably already on your bookshelf. Like Rocky, your reps will find these techniques need practice, practice, practice, but the rewards are huge.

Asking more prospects better implication questions gives your reps the insight they need to let them continually expand the Value Circle, as shown below.

Principle #4: Do the Math
Using the insight from the prospect interviews, teach your reps to calculate a specific dollar value for your solution. Ideally, this calculation should be at least three to ten times greater than the price of your product. If not, the prospect won’t have sufficient financial reason to purchase your solution.

The goal here is for the rep to paint the quantifiable “value” of your solution, or the sum total of what benefits your solution will bring in these areas:

Hard-dollar cost reductions
Hard-dollar revenue gains
Soft-dollar cost reductions (converted to hard dollar cost reductions)
Soft-dollar revenue gains (converted to hard dollar revenue gains)

In other words, you’ll need to teach your reps to “do the math” – you can’t count on your customer to know how to do it, or to do it the way it needs to be done.
Don’t know how to do it yourself? Ask a knowledgeable finance or accounting person to help you create an Excel spreadsheet that you can use as a template to calculate this over and over again with each new prospect.
Before you whip out this new number in a presentation, make sure it is reviewed and confirmed with several people in the prospect’s organization.

How it Works in Real Life
Recently, a client came to me for assistance in teaching –his reps to sell on value, not price. This sales director’s team was negotiating a two-year, $30 million deal, and wanted to be sure they were doing everything they could to lock up the sale, while maintaining the highest price and profit possible.
I led the team through some specific strategies involving these principles, and charged them with carrying out some very specific, related tactics. The result? They not only won the business, but also increased the deal size 33% and held firm on the price and profit margins.
What led to these tremendous results? First, the sales team paced the sale by re-focusing the issues on the prospect’s pain, and the value of solving that pain. Second, they went to the not-so-usual suspects for new perspectives on current problems and opportunities. Third, they asked implication questions of many people within the prospect organization. Fourth, armed with their new insight, they calculated a plausible Value Circle that was many times larger than the price they eventually proposed. The prospect , previously focused on price, price, price, suddenly dropped it from the discussion once he saw the calculated value of the new solution.
Was I excited for this team? You bet! They exhibited the patience of Job, the curiosity of Columbo, and the dedication of Rocky. Most important, they’ll never jump too soon at cutting price again.

Potential Call Outs:
1. By the time an RFP is issued, at least one-third of the true buying cycle is already over.

2. Buyers think about value in general, but they aren’t usually prodded to think about it in specifics. By asking well thought-out implication questions, your reps turn an abstract situation into a concrete problem.

T.K. Kieran is President of . and Principal with . For over 21 years, she has helped corporations fine-tune their sales strategies. Her unique insights turn sales into a science, transforming soft, “mushy” processes into measurable, goal-driven strategies. Kieran has worked with clients in a broad range of industries, including technology, telecommunications, utilities, retail, food service, publishing, insurance, banking, and executive education. Her specialty is in the area of high-ticket, high-tech, business-to-business sales. She performs an assessment of current business growth trends, then designs, develops and implements new sales and marketing processes. These efforts frequently allow her clients to achieve double and triple-digit increases in sales and/or profits. She is currently working on two books in the area of sales growth strategies. A 1979 cum laude graduate of Samford University with dual degrees in marketing and finance, Kieran also holds an Executive MBA from Georgia State University. She is currently a member of the Technology Association of Georgia, Business & Technology Alliance and the Board of Directors Network. She also serves as a mentor in the Georgia 100 Mentoring Program, and was previously a mentor for the WIT Mentoring Program. T.K. Kieran can be reached at .