When a buyer and seller don’t align on price, you might guess the sale won’t go through. But, often, it does. So, how did they make it work?

In the 1970s, researchers studied the effect of seller ability to deviate from list price. They suspected sellers with higher pricing authority would close better deals. Because their commissions were based on margin, it was in the seller’s best interest to close the best deal possible with each buyer.

However, the sellers with the highest pricing authority had the lowest sales and profit performance. In fact, “high authority” sellers had 11% lower average margins and 13% fewer sales per seller compared with sellers who had low authority to negotiate on price.

The study identified two probable culprits: buyer tactics and seller behavior.

The Problem: The Seller Often Caves

The bottom line? Sellers cave too often. They cave when the price differential is close, but make no mistake, caving happens all the time. This leads to:

  • Bad deals for sellers
  • Sellers setting a precedent for price concessions
  • Diminished results for sellers meeting their revenue and margin targets

Bad deals aren’t just about price dropping either. There are contingencies and cancelation terms added, payment terms extended, and additional product and services requests.

These factors leave sellers continuously chasing quarterly hurdles and annual quotas. And buyers know this and sometimes take advantage of it.

Then, it becomes emotional. Sellers have a sense of urgency and anxiety -- which can make it difficult to think straight.

When sellers are anxious, it affects how they approach sales negotiations, and that changes how buyers interact with sellers.

Let’s say you’ve been speaking with a prospect for a few months about your CRM technology. You’ve had several conversations about their frustrations with their current provider.

They’ve seen your software in action and seem impressed, and you’ve gotten as far as drawing out a preliminary agreement. But then, you get on the phone and hear, “The price is too high.

If your first response is, “Well, what’s your budget?” you’ve opened the door for them to suggest an amount. That’s when the haggling begins.

The Solution: Be Ready to Trade

In pricing negotiations, you must make sure you get something for giving something. That means being ready to trade. Rule number five in Six Essential Rules of Sales Negotiation is: Trade. Don’t Cave.

The best negotiators are able to uncover new possibilities and alter the scope of an agreement in order to add more value or lower the cost. But how? Here are a few responses to practice.

Best responses to “I’m going to need a better price

Pricing objections are tricky because they’re almost never what they appear to be (i.e., they're almost never because your product is too expensive). Here’s a brief guide to determine what your buyer is really saying when you hear, “The price is too high”:

1. “Wow, that’s a lot. Can we do it for less?

This comes from the buyer who always asks for a price reduction because it’s worked in the past. They think it can’t hurt for them to ask. Whatever price you give them, their first response is always to whack it back.

Your response here should be firm. Instead of caving and asking what their budget is, explain why you’ve presented the price you have. Say, “The cost of this solution encompasses best-in-class customer service and highly trained and experienced support 24/7.

We know we’re not the cheapest solution available, but we are the best -- and that’s a claim backed up by winning the ‘Best Customer Service’ award three years in a row.

You’ve explained why you can’t and won’t budge on price by highlighting the value of your product -- and that’s something a prospect can’t argue with.

2. “It costs too much. Money is going to be a problem.

Perhaps the buyer can’t justify spending XX% more or they just don’t see the impact of paying more for a higher quality product/service. You might respond with, “I understand budgets are tight. I could rehash the ROI of our product -- or I could put you in touch with a company who had similar budget constraints but saw huge gains in revenue upon implementing our solution. Would you like that?

Sharing a happy client with a similar background could give them the encouragement they need to bite the bullet and sign the papers.

3. “I received other proposals and your price is the highest.

If you’re familiar with the competitive landscape you should know if this is true or not. Regardless, your prospect is likely using this as a bargaining chip to bring your price down.

This is another scenario in which explaining why you’ve priced your product the way you have can be helpful to highlight the value of your offer.

If they’re still not convinced, offer them an integration or an extra month of onboarding support at a reduced rate. This increases their perceived value without lowering the actual value of your initial offer.

4. “It’s too much money. Call me back if you can go lower.

This might still be your prospect bluffing, but, ultimately, you must hold your ground. After all, as a modern salesperson, you’re trying to solve for the best interest of the customer -- and that sometimes means walking away.

If your prospect truly can’t afford your offer, it’s not in their best interest to sign with you right now. Say, "I completely understand. Would it be alright if I give you a call in six months to see if your budget is more accommodating to this solution?"

This keeps the door open and keeps you from appearing pushy or desperate -- two things that immediately diminish your bargaining power.

Whichever of these approaches you take, don’t cave. Don’t open the door on price just because your prospect knocks.

Ask why they don’t think your product/service is worth the price you’ve quoted, and share more information based on their answers. If they still won’t budge on price -- trade, don’t cave!

You can make both strategic and tactical trades. In strategic areas, you can change:

  • The solution set and scope
  • Service level agreements
  • Offer guarantees
  • Performance expectations

In tactical areas, you can change:

  • Price
  • Volume
  • Contract term
  • Conditions
  • Roles and responsibilities

All of these areas are available to you to change. The most important concept is to never give anything away for free or just drop the price.

While preparing a list of trades ahead of time is a tactic, the heart of trading is about mindset, not skill. Don't cave. Always trade for value.

HubSpot Free Sales Training

Originally published Sep 17, 2018 6:03:00 PM, updated September 17 2018

Topics:

Pricing in Sales