Ever see this happen? Early in the initial conversation the prospect asks, “So, how much is this going to cost?” Before you know it the salesperson is spending hours of his time, hours of engineering and who knows how many hours of other people’s time coming up with an elaborate proposal. We usually uncover this when we ask our client what their win ratio is for proposals to orders. When it is abnormally low, we often surface this common problem.
Here are a few reasons why Premature Pricing is a bad practice.
- Bloated Pipelines: In past newsletters we have talked about bloated and unhealthy pipelines. This is a sure way to clog your pipeline with low probability proposals. The prospect hasn’t been adequately qualified. Are we dealing with the person who has authority to buy? Who else is involved in the decision? Have we uncovered their budget? Do we know when they will buy? Do we know their buying process? Do we know who the competition is and what they are offering?
- Internal Time Wasted: Are your estimators, engineers and even salespeople complaining they don’t have enough time in the day? If they are spending 80% of their time preparing proposals that have a 10% chance of turning into orders; you have a BIG problem. Let’s get these folks working on proposals that need fine tuning because they have been properly qualified.
- Early Discounting: Offering a complete proposal too early reduces the sales process to negotiation price before you know what will be purchased. Your margins are eroded and then the specifications are discussed. Isn’t that exactly opposite of what should happen?
The quandary is a simple one. The prospect needs some idea of how much it will cost to solve his problem. We haven’t defined the problem or the solution enough to offer exact pricing. Try responding with this answer to the question of how much will it cost. I’ll answer your question in a moment but to give you a more accurate answer, may I ask you three questions first?”
We need to know where the prospect is in the buying process. He needs to know how big the solution might be so he can set his budget. He does NOT need final pricing. Interestingly, the prospect will take final pricing from you, but he doesn’t NEED final pricing at this point. This is where untold hours of time and resources are wasted in Premature Pricing.
Next time, try this approach. Develop a proposal that gives two or three broad options. They should range from least expensive to most expensive. Least expensive covers the bare minimum. The most expensive includes all the bells and whistles and looks to the future for expansion. Come up with some creative names like “budget solution” and “premier solution”.
If you product has options or accessories list those separately, show a menu of options when applicable. Give your prospect rough estimates, so he can see many different solutions to his problem.
Following this approach will give your prospect the information needed to keep the buying process moving and not prematurely entering the final proposal and pricing stage. This is a much more consultative approach than just offering a single final price.
Try it; we think you’ll like it!