How to Sell at Margins Higher than your Competitors provides a number of interesting lessons and insights into selling a high margins versus volume. Rick is available to lead a small team discussion - excellent for small business sales teams looking to energize the beginning of a new sales period. Receive a free pdf of Rick's complete analysis - put Sell at Margins Higher than Competitors in the subject line. Authors: Lawrence L. Steinmetz, Phd and William T. BrooksBusinesses Fail ================ * 16/17 businesses fail – most in 2 years – life expectancy is 7.5 years * businesses fail as a result of not making money – need to understand that you are competing with companies going broke when they slash their pricing (as a desperate attempt to stay alive – they think they can make it up in volume) * businesses going bust experience three situations – (1) declining gross margin, (2) wages as percentage of sales begins to increase, (3) sales volume begins to increase (1) declining gross margin (GM = Sales – Cost of Goods Sold) - indicates a pricing problem – which clearly sends a signal that price isn’t high enough compared to costs - three causes of gross margin decline *** cut price *** fail to raise price when cogs increases *** raise price by the same dollar amount as cogs instead of raising by percentage (2) wages as a percentage of sales begins to increase *** too many people on the payroll *** too many people making too much money *** too many people with nothing to do *** bottom line – executives must never allow wages as a percentage of sales to increase above a point where they have good profitability (3) sales volume begins to increase *** surprisingly businesses fail when sales volume goes up – business is not a game of volume (or market share) – business is a game of margin *** if a business doesn’t maintain gross margin at an adequate level, it is going to go bust regardless of sales volume! *** volume goes up because when a business begins to fail it has a cash flow problem which is resolved by selling volume at discounted prices which spirals out of control Competition Cuts My Price ============================ * Your competitor does not cut your price; you cut your price - cutting price is a self-inflicted wound * It is a false notion that people (and business) buy on price – and price alone - many say they buy on price; and many even think they do – and most of your customers will tell you they do because they are trying to get you to cut your price * Price is virtually always more important in the mind of the seller than in the mind of the buyer – intelligent/experienced buyers are worrying about delivery more so than price – in fact delivery, quality, service is far more important than price * Importance of delivery – delivery relates to all products or services *** delivery problem is virtually always the trigger event that causes loss of a sale to an existing customer *** customer doesn’t care about why you can’t deliver *** customer doesn’t care about your excuse for non-delivery *** screw up delivery one time and your customer will find another supplier because they have to – they have a need you’re not fulfilling * We’d can any salesperson who worked for us who was a price-buyer! Can him or fix him. *** price buying salespeople project their feelings onto their customers *** price buying salespeople tell the customer they think their own prices are too high – inviting their customers to beat them up on price * When you don’t talk price you’ve lost *** says you’re scared – salespeople nervous about their price always signal to the prospect that they are nervous by the way they do/don’t handle price *** you must be credible, comfortable, and confident when talking price – can you state the price as comfortable as you state the time? *** never use adverbs and adjectives when you present or discuss price – these are typically used to “cushion” the blow which says you’re willing to cut price – such as our “asking” price, “usual” price, “quoted” price, “suggested” price *** eye contact is important – breaking off and looking down when discussing price says volumes Determine Your Competitive Advantage ====================================== * Competitive advantage is price, quality, advertising/promotion/salesmanship, service, and delivery * Price – intrinsically we believe that price reflects the quality and value of the product or service that we are buying *** when you say your prices are cheap – that translates to quality and value – conversely, so does when you say your prices are higher translate into a higher quality and value *** acknowledging that your price is higher triggers a response in the customer that creates the most receptive and responsive atmosphere in which to sell product * Quality – can be the most important reason your prospect buys *** selling quality is easy, but only if you have quality and you know what it is – quality is not best, quality is conformance to your prospect’s standards and expectations *** said another way – quality is the “right” stuff – if it’s too good, then you’re cutting prices – example – walnut wood – not right for subflooring but good for building fine furniture – you’d have to cut pricing to use as subflooring * Salesmanship (and advertising/promotion) – salespeople sell things to people *** salesperson’s job is not to treat anything as a commodity – other things are NOT equal – customer needs knowledge on why it’s not – example is gas – different prices by station, cash or credit, car rental without topping off gas – all vary for a “commodity” product – it’s our quality, our service, our delivery, our company policy/procedures, our care and attention, etc. that a salesperson sells * Service - Most companies don’t like to give customer service, nor the idea that service is the responsibility of all employees *** Service can be the one single thing that makes or breaks a sale – easy to compete on service as few businesses really want to compete on service – typically the customer is treated as an unnecessary inconvenience – examples – banks 9-5 “full service” hours or government agencies there to “serve” *** Great service example – Tom Monaghan built Dominoes Pizza which sold in 1998 for $1B by charging for pizza but selling service – he then delivered on that service promise on-time like he said he would *** Better mousetrap theory is incorrect – if customers are beating a path to your door, then your prices are too low *** Salespeople must personify customer service – historical studies show that the big dollar earners have one thread in common, they take care of their customers – they’re watchdogs that the promise they made is delivered – nobody pays big bucks for excuses! * Delivery – you can compete successfully, consistently, and long term with delivery – furthermore, you must competitively compete on delivery if you want to sell at a higher price * Delivery is why buyers spend the time and trouble to tell you they can get it cheaper somewhere else but don’t – ask yourself during negotiations as to why are they talking to me if they can get it cheaper elsewhere – the answer is delivery * They can’t get it… *** they misrepresent your competitor’s pricing *** the same stuff isn’t available at this time – they really want your quality, your service, your delivery at the other guys price else they’d be getting it from the other guy *** it really isn’t the same stuff – know/verify what the competition offers * They can get it, but… *** they don’t really want to (because you offer better intangibles/delivery) *** they’d better not buy it there (because their boss or company policy said – due to past delivery or lack of delivery on your competitors) *** they can’t get it there, even though it’s available (competitor won’t sell to them – typically related to payment) * The ability to deliver the right stuff at the right place at the right time with good service will actually make you sales and help retain customers – therefore the most significant point to compete on is delivery – conversely, if you have delivery problems you will find it difficult to compete at any price * Anybody can cut price, get an increase in sales volume, foul up delivery, have quality problems develop, find service falling to pieces, and go broke * Products and services are sold at the desired price because a business gives its customers quality, service, and on-time delivery * If you’re going to give your customers what they need and want; you have to charge a premium price – those companies charging a premium price survive the longest, make the most money, and are able to pay the highest wages A Note About the Pure Price Buyer =================================== * A pure price buyer’s goal – you are not going to make any money on me – period *** take all your sales time *** they do all the complaining – receive concessions – want 100% satisfaction to their ideas, not yours *** forget to pay *** they tell others how little they paid – makes your next sale more difficult without price cutting *** they drive off your good customers – little time left for your good customers *** they’re not going to buy from you again, anyway – only loyal to the low price vendor at that time *** require you to “invest up” to supply their needs – and they blackmail you for yet a lower price – “invest up” is to build up your business to suite them – such as equipment, inventory, people, etc. *** they destroy the credibility of your price and your product or service in the eyes of the end users – these are resellers and they sell on the discount *** they steal any ideas, intellectual property, information, and knowledge What Buyers Need ================== * Most in sales cut their prices because they have never really analyzed what the customer needs versus what they say they need. They will always say they need a low price, but they don't really need a low price - if they do, then it's better not to take their order because they won't pay * They need two or more vendors - that by definition means that one vendor can charge a higher price and get the business * Customers need on-time delivery - more than anything else!! If you deliver on-time, you don't have to sell low - note - most businesses eventually have a delivery problem from too much business as a result being too low priced * They like the idea that they're cutting a deal - buyers are ultimately rewarded not on how much they spend, but on how much that they save - thus if your prices are significantly higher than the competition, you can discount and give a bigger savings while still maintaining a higher price * They need respect - give a little, get a sale * They need help and guidance on complex purchases - being an educator to a prospect gives you an advantage against the competition - you earn their respect and loyalty - however, don't expect a prospect to buy on that respect and loyalty, but instead, understand that by being an educator you will always have access to your prospect and the opportunity * They need to buy what they are told to buy - typically those who own the problem, don't own the buying role - meaning that 85% of the people doing the buying have very little say in what to buy - reason why you need to do backdoor selling - find the real buyer, the end user!! Iron law of backdoor selling - forgiveness is far easier to secure than permission * They need to get what they buy - deliver your product, provide excellent service, do just as you promised * They need to minimize inventory without risk - another indicator that it is all about deliver and not price * They need to purchase from a technically current and financially sound vendor - you need to be around to service * Need more certainty on "a" type items - "a" items are critical to their business and they can never go out - example - airline "a" is fuel; "b" is beverages and ice; "c" is cocktail sticks - you need to know where your product or service fits in * Need production / performance capable - all about delivering and being capable (capacity, know-how, or experience) * Need timely action - accepting orders, answering questions, responding to order problems or delays * Need speed/accuracy on invoicing and costs - allows your customer to make smart business decision * Need order and service help - be an educator * Need quality transportation carriers - even when it's not your fault - delivery will be your fault in the eyes of the customer * Delivery - most significant component of selling at a high price - low price = high volume = not enough product = late shipments = rushing = bad quality = customer complaints = bad service * Never compete on low price - concentrate efforts on providing the customer's needs - charge a premium price for your performance * Easy to do business - they get what they want, when they need it, on-time, and in good shape * Reliable and dependable - built on history * Predictability - past relationship and reputation * Reaction to their needs - be flexible and responsive to their needs * Short delivery times - no matter what the product or service, everyone wants it yesterday * Help reduce costs by realizing savings - this is not price cutting, but finding advice and assistance relative to uses and applications of your products and services * Breadth / depth of quality - make sure your customer is getting the right quality and maximum utilization of your product or service * Total product offerings - a full line of offerings makes it easy for your customer to purchase from one source * Knowledge, competence, follow-up - being in good hands - there after the sale * "Go to bat" - win customers for life when you're willing to help them in a crisis when problems arise * Complete knowledge - know your stuff * Knowledge of your customer - know how your customer is going to use your product / service * Be prepared for sales calls - don't just wing it * Regular, predictable sales calls - predictability = reliability * Technical education - educate and you'll receive preferential treatment * Short shipments - it happens, ship what you can, get the remainder there quickly * Easy to understand pricing - confusion erodes trust * Early notice of problems - if there is a delivery problem - let them know asap and help them through your difficulty * Advanced warning of discontinued items - helping your customers through product changes and on top of developments * Understandable and legible shipping docs - did they receive what they were supposed to receive and all documents match which makes it easy to do business * Competitors delivery problems get you profitable sales - when a customer cuts a vendor due to delivery, quality, or service; they no longer qualify on price - they need to know that the current problems won't happen with you Rick has further analysis on selling at higher margins including the math of pricing (the volume myth), facing a competitor's price cuts, the cardinal sins of selling, how buyers are good liars, how to hang in under price cut pressure, indicators that you're underpricing or overpricing, how prospects will attempt to get your to price cut, how to finalize the transaction, guidelines on pricing, and final thoughts. 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