Stop cutting prices when you have alternative options available. Bad things usually happen when you cut your margins. While you may increase your sales for the short term, you will unnecessarily reduce your profits for the long term.
The question you must ask yourself is, “What happens when you give your customer a lower price?” I make the assertion that many things happen and most of them are bad. Recognize that a 1 percent reduction is significant for a company operating at 3 percent gross margin. If you lower your price, that “one point” concession equates to a 33 percent reduction in company profits!
Other bad things happen when you offer a price concession. The recipient of your generosity now believes they should always negotiate with you. He also wonders why you didn’t just give your best price up front. Moreover, they are left wondering if they actually received the best possible price.
If you consider your own experiences as a purchaser, you probably feel relieved when a request for a price concession is denied. You walk away, during those moments, feeling that you have done a good job as a negotiator by obtaining the best possible price. So as a seller, rather than assume that a customer will be satisfied by a price reduction, consider the possibility that the customer will walk away satisfied if you do not give a price concession. They will know they got your best possible price.
Of course, I am not naïve and recognize that there are times when you must negotiate. For those situations, here are my tips to make you a better negotiator from the selling side of the table.
1. Create a vision before the negotiation. Most salespeople toss out prices as a starting point and hope for the best. Decide before you provide a price where you place the bottom line and the minimum you’ll accept.
2. Stop bidding and start proposing. This tip is a whole new subject onto itself, but essentially states that a bid is a voluntary auction. You bid and then wait to see if someone bids lower, then reduce your price waiting to see when the lowest bidder wins.
3. It is a bad way to do business. Slow the process down by delivering proposals which outline a host of objectives and illustrate the total cost of doing business, not merely the price of goods.
4. Get to give. The next time you do offer a lower price, get something in return from your client that is low cost to them, but high value to you. This could be an additional product in the mix, a commitment to future purchases (in writing), a deposit or faster payments and so forth. Get something if you’re going to give something. Your clients will respect you for it.
5. Be willing to walk. You can’t win a negotiation if there is not a point at which you can walk away. Your ability to walk is based on the alternative opportunities in your market. Thus you will need to prospect aggressively to locate every opportunity in a shrinking market. Prospecting creates perceptions of abundance and gives you power in individual negotiations.
There is a time in the career of every salesperson when they must stop the negotiation by looking a customer in the eye and proudly declaring, “You have my best price.” When this happens, only a few things can occur. One of them is that the customer doesn’t buy. Another is the wonderful possibility the customer buys at the profitable level you wanted in the first place. One thing is for sure, you’ll never know if you never try.