Don’t Make Pricing Concessions Too Quickly
If your business is one where sales reps or others have latitude in negotiating price with customers, establish floors for gross profit and train them to negotiate effectively. The problem with leaving pricing decisions to sales people is the fact that they want the sale. Unfortunately, their exuberance for making the sale often leads to unacceptable gross profits.
The idea of “leaving money on the table” for no good reason should be alarming to any business. But it is very common for those responsible for pricing products and services to underprice them such that significant money is essentially lost in the process. The biggest culprit in the process is a desire to make the quick sale. By taking a little extra time to sell value and advantage to the customer and by holding a little firmer in the negotiating process, gross profits on individual sales will move upward.
Sales people and others need to be trained in the art of negotiation. They need to understand when to hold and when to fold, so to speak. They need to understand how to sell value and advantage and create a perception of “price worthiness” in the customer’s mind. And they need to understand how to incrementally inch prices down in the process rather than taking big leaps.
There need to be firm guidelines about gross profit and/or pricing as well. Without any guidelines or limits, some sales reps could essentially be giving product away.