How_To_Create_An_Effective_Pricing_Strategy_That_Doesnt_Kill_Your_Profits

 

When it comes to boosting short-term sales, discounting works like magic. Reps love it; customers respond to it. Most of your deals depend on it.

 

As CFO, you know how deeply discounting is embedded in your sales culture. Reps don’t want to hold out for premium pricing and risk losing a sale. They’d rather close now and move on to the next transaction.

 

Here’s the unpleasant truth: Their short-term gain is your company’s long-term pain.

 

Rampant Discounting Has Toxic Effects

A lack of pricing discipline is a drag on your entire organization. Your financials, your market position, your growth strategy—nothing is immune.

 

Here’s what routine discounting is costing you:

 

  • Your market price has no credibility. Customers view it only as a starting point for negotiation.
  • You’ve institutionalized conflict, tension, and unnecessary activity.
  • Top-line revenue takes a hit, as do investments in R&D, operations, etc.
  • Commission schedule and rates must be adjusted to offset discounting losses.
  • Everyone is gaming the system.

 

You know you need a sea change. But how do you fight the current?

 

How can you instill pricing discipline in your sales team?

 

First, you need to create a pricing strategy that requires no gimmicks to succeed.

 

Buyer-Driven Pricing: The Road Back to Premium Sales

What’s needed to correct this destabilizing pattern is an outward-in perspective. That means building your pricing strategy around your buyers’ pain points, needs, and perceptions.

 

To do that, you’ll need to:

 

Research your customer base. Use the results to define the value buyers place on your product. What are they willing to pay, absent a discount offer?

 

Determine what makes your product worth the price. What are your product’s competitive differentiators? Do they justify, in the minds of your buyers, the price you’ve set?

 

Align your product and pricing strategies. Your R&D spend should be a top priority. If you invest in developing uniquely valuable innovations, you can safely charge a premium. And your customers will clamor to buy.

 

Make Policies That Reward Profitability Tiered discounting policies don’t just enable discounting. They encourage it.

Perhaps your policy looks like this:

 

  • Sales reps can approve discounts up to 10%.
  • Sales managers can approve up to 20%.
  • Sales VP can approve up to 30%.

 

Typically in this type of arrangement, only 10% of transactions are premium sales. 

 

Your salespeople are doing whatever they can to close deals fast and make the number.

 

Here’s how you can motivate your team to hold out for premium sales:

 

Tighten up approvals. Narrow your approval limits, or eliminate approval tiers altogether. Or, you can require all discounting decisions to be sent to a pricing committee.

 

Roll out quarterly contests. Draw your team’s focus away from top-line revenue. Offer SPIFs to sales reps who achieve the highest profitability (smallest discounting margin).

 

Extract value with every discount. Make every discount part of a “get-give” arrangement. Sales reps should ask buyers for something in return. This could be a marketing “give”—a customer’s logo or testimonial for website use. Or, better yet, the “give” could relate to financial terms. Reps could request a shorter payment arrangement, larger upfront payment, or longer-term contract.

Here’s the Bottom Line

Top-line revenue matters. But profitability should be your sales team’s primary concern.

 

Make discounting less important to your buyers. Make it less appealing to your reps. Over time, you’ll see less of it.

 

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ABOUT THE AUTHOR

Aaron Bartels

Helps clients solve the most difficult challenges standing in the way of making their number.
Learn more about Aaron Bartels >

He founded Sales Benchmark Index (SBI) with Greg Alexander and Mike Drapeau to help business to business (B2B) leaders make the number. The world’s most respected companies have put their trust in and hired SBI. SBI uses the benchmarking method to accelerate their rate of revenue growth. As an execution based firm, SBI drives field adoption and business results.

 

His clients describe him as a consultant who:

 

“Makes transformational impacts on me, my people and my business”

 

“Solves my most difficult problems that to date we have been unable to solve ourselves”

 

“Brings clarity to an environment of chaos”

 

“Has real world sales operations experience making him qualified to advise us on a variety of sales and marketing challenges”

 

“Is able to spot proven best practices that once implemented will make a material impact on my business”

 

“Constantly challenges status quo and compels us to act”

 

“Focuses on execution and driving change to stick in our environment”

 

“Makes good on his promises while enabling our business to realize his projected results”

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