Many businesses find themselves trapped in the delivery of long-term contracts with thinner and thinner margins as successive contract revisions have dented the profitability of the original agreement. It can be partly explained by the change of actors around the table, with sales people being swapped for operational delivery managers on one hand, and the supplier relationship remaining with purchasing staff on the customer side. As a consequence, there is no match of commercial capabilities between the two parties, and it becomes very easy to pick on itemised topics, restricting the discussion to unit cost and volumes. A way to slow the margin erosion over the lifespan of a contract is to start from a higher point than what would be attained with a cost-plus model. The trouble of value pricing is that it takes much more effort to sell, and it brings the fear of being outbid on price.
Selling for value rests on a deep understanding of how your products are generating value for your potential customer. The challenge is to identify the pain points of your potential customers and to quantify them. Everyone will have a different narrative, and figuring it out has become easier with the wide range of data publicly available. Beyond fact finding, a granular quantification of what is at stake requires a strong business acumen and an understanding of what the currency is for a specific client.
If you client has a high churn rate of its customers, and needs a strong marketing presence to even maintain market share, the value you can offer will be in your speed of service rather than in its real cost. You will help your client to be more responsive to its customer base, which can become a competitive advantage and relax the need to spend as much in marketing. If your client does not understand well enough your product and rely heavily on it to create its customer experience, you can offer services to bridge that capability gap.
Aware of these pain points, the art of selling for value is to craft a solution together with the customer. It takes the ability to drive the conversation in order to mutually agree what the real problem is, how this could be addressed, and why a commonly defined solution would fit with your delivery capabilities. At some point during the conversation, the framing of the solution and its matching with your delivery capabilities will be owned by your customer, and then – but only then – time is on your side. Strengthened by the belief that its specific issue can be addressed, the customer will be ready to buy from you a solution that is uniquely crafted and therefore cannot be replicated.
So, when you begin to moan the low profitability your current sales practices are generating, it might be worth asking yourself the following questions:
- Do sales mostly happen through tenders or are there instances when you do not face competition?
- What depth of understanding have your sales reps of the business challenges faced by their prospects? How is it documented?
- How commercially minded are your sales reps when framing the discussion about your offering?