Every client has a price range where they are willing to make a decision without any further thinking, their Price Tolerance (PT).
Knowing your client's PT is critical. It is one of the major obstacles salespeople fail to understand. If you do not understand a client's PT, at least one of the following results is inevitable:
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You offer a price that does not maximise the profit potential |
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You get the business but encounter resistance from the client that hinders the relationship |
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You encounter resistance that leads to spending too much time on the selling process and ultimately no order |
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Looking at each of these individually, starting with the first one where the price offering does not maximise the profit potential.
I start with this one because it is the most common. The salesperson rarely finds out the price is lower than necessary until long after the sale is completed. Or worse yet, they never find out.
The only way around this is by asking the client early in the relationship, before they have expressed any intention to buy, how they determine value and what their critical needs are. Many times, trying to ask these questions during the sales transaction is too late unless the client is experiencing a significant issue as to why they need to buy.
I say that because once the client has determined they need to buy, often they become focused on seeing what it will take to get a lower price. If you ask them a question about value at this point in the sales process, the client may very well use the question against you.
Take the time to ask the client why the product/service is important and what risks they feel they would encounter should they not receive it on time. Ask them how the product/service fits into the overall scheme of what they do.
As a salesperson, if you can identify value or risk in other parts of the supply chain, you can leverage this information during the sales process and increase the amount the client is willing to pay (essentially widening their PT).
The key is to find out as much information about the client as you possibly can early in the sales process. You also need to understand how critical time is to their buying process. Obviously, the more critical time is to the client, the wider the customer's PT will be. The impact of time could be reflected in how quickly they want to buy.
By thoroughly understanding the clients PT, you will be able to effectively price your service. Pricing too low means you leave profit on the table; pricing too high means you do not get the order. There is no magic formula. It comes down to your level of knowledge and your confidence.
Client Resistance
The second situation a salesperson may encounter with regard to PT is that they get the business but with resistance that ultimately hinders the relationship. Resistance is not always a bad thing. I believe strongly that if you do not encounter some client resistance from time to time, then you have not truly pushed the process to the point of being able to maximise profit.
When you encounter resistance, you first have to determine if the resistance is real or superficial. Many times the client is merely venting as a way to assert control.
The best way to measure if the resistance is real or superficial is to see if they continue to express their concerns about price on a number of occasions. If price comes up only once or twice, then you can reasonably assume it is merely the client venting. You can overlook it and continue with your sales process, knowing your level of service and support is going to overcome any pricing perception.
If the client carries on discussing pricing, then the resistance is real and it will slow the sales process. You then can adjust accordingly.
Prevent Wasted Time
The final reason knowing the PT is essential is it prevents you from spending too much time with someone who is nothing more than a client from whom you cannot make any money.
Early in the prospecting and sales process, you must begin determining the clients PT. The easiest way is by simply asking them what they have been paying for services in the past and what their expectations have been for the companies they have been using. If you are not direct with questions like those, you will waste time chasing customers you ultimately do not want.
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