How To Handle Tough Price Negotiations
RFPs, RFIs, RFQs can open the door to glorious, profitable opportunities that can make your year—or even your career.
They can also open the door to tough negotiations that can wear you out, break you down, and even end your career.
First things first: Save proposals for the end of the negotiations.
Your proposal should be used simply to clarify and solidify the points that have already been agreed upon rather than a tool to prospect and explore.
You CANNOT afford to lead with a proposal.
You CANNOT afford to have your proposals floating around the interwebs because your prospects will share your proposals with their friends at other companies and with their favorite salespeople to both help them and to get a little better price.
The Fundamental Processes to Grow Your Sales Without Growing Your Staff: Stop Doing Proposals
Here are just a few things I'd rather do than create a proposal:
- Follow a driver's ed student when I'm late for an appointment.
- Hear one of my kids at 2 am say "I think I'm going to be sick."
- Meet with an IRS agent.
- Lead another fund raiser at my kids' school.
- Watch anything with the Kardashians.
You get the point?
But Wes, proposals are needed in business. How else can I get clients?"
For the most part that is true, certainly if you do longer term consulting and/or engage in complex projects, however, proposals should never be "fishing expeditions" or Christmas wish lists that you hand over to your prospect and hope they like.
It's never the beginning of the negotiation, which is how most of you use them. They are always the summation of what you've already agreed to.
Proposals should merely be the formalization of what you have already covered.
There should be no surprises or gotchas in the proposal and they should be as standard and boilerplate as possible so as to make you more efficient and accurate, which helps you get to work on behalf of your clients sooner and more affordably because you don't have to build in hours, days, even weeks on building your proposal.
But Wes, everyone is unique. Every project is custom. My clients are gentle snowflakes. I have to personalize each proposal."
While I agree that every human on this earth is unique, their needs are not. Ultimately we are all striving for security and stability in four areas:
Regardless of what you do for a living you are going to help them in just one or more of those four areas.
Now let's say you're a contractor and someone wants to makeover their kitchen. There could be 100 line items on what needs to be done from new cabinets, the type of marble for the countertop, appliances, etc.
But you're an experienced, professional contractor, which means you have an exhaustive checklist with 287 items on it that shows you've thought of everything (and has the added benefit of letting them know deep down that you know what you're doing and that they made the right choice to meet with you.)
When you meet with the prospect you sit down together and scratch off what is not needed or wanted, confirm their budget and timeframe, agree on all of the above, insert it into your boilerplate contract, print it, you both sign it, and you collect your deposit and get to work.
There's your custom proposal done within five minutes of confirming everything with the homeowner.
This can be done in 98.2% of industries 96.5% of the time.
PRO TIP #1: Charge for the proposal.
But Wes, it's so competitive out there. Nobody—I mean NOBODY—charges for proposals. I'd get slaughtered."
Really? If nobody charges for proposals then that's exactly why you should charge for proposals.
(See how I do it with the "Process Before Login" below.)
Think about it: if you look, act, dress, smell, and quote like everyone else, how can your prospects differentiate you from your competition on anything other than price?
Think about it: if you can get your prospect to commit to a $50 or $350 or $500 or $2,500 "Initial Process Assessment" or "Discovery, Documentation, & Remediation" finding that will create a fiduciary responsibility on your part to give them the most thorough, accurate, and honest recommendation so they can make an informed decision and quickly tackle their most pressing concerns—and even correct some of them during the discovery phase—don't you think they're much more likely to go with your final proposal?
Think about it: if your prospect says they make all of the decisions but doesn't have the authority to retain you for this discovery, wouldn't you want to know that up front?
Think about it: if your prospect is only focused on price and doesn't want to meet with you, doesn't want to answer your questions, doesn't want you to bother them, and just wants three bids so they can pick the low cost provider and get on with their business, wouldn't you want to know that within 10-30 minutes rather than 10-30 days or even weeks?
PRO TIPs #2 & #3: Deliver your proposal in person and never leave it behind for them to consider (and shop it around and give to your competitors.)
Professionals leave nothing to chance.
Professionals control the sales process.
Professionals seek, ask for, and can handle the truth, even if the truth is that you will not win the sale.
Professionals get paid for their professionalism, knowledge, skill, and experience.
Ready to stop giving free proposals?
Only 3 Things Can Happen When You Submit A Sales Proposal (And 2 Are Bad)
Duffy Daugherty was a great coach for the Michigan State Spartans and lead them to two national championships in the '60's.
He was a fan of running the football because
Three things can happen when you put a ball in the air—and two of them are bad."
By that he meant when you threw the ball it would either be:
- Caught for a gain (the desired result.)
The same can be said for submitting proposals.
When typical sales people submit a proposal three things can happen and two of them are bad:
- It is rejected.
- It is negotiated down.
- It is accepted.
Your Sales Proposal Process Is Killing You
That is why I cringe when I hear sales people and sales managers tell me with pride how busy they are giving proposals.
You stay in business and grow your business and grow your commissions by selling more deals at higher margin faster than you did the day before, which is why the way you are giving proposals today GUARANTEES you will struggle to make it in business.
The other day a friend of mine asked me how to resurrect a deal after the prospect had gone dark, which happened right after my friend provided his usual proposal.
Not only had he provided the typical proposal, he had provided references, met to review the proposal, and even agreed to meet on a Saturday so as not to inconvenience the prospect. (Can you see where this is headed?)
Repeat after me:
PROPOSALS ARE NOT FISHING EXPEDITIONS!
How To Give a Sales Proposal
In order to understand how to give a sales proposal, you must first understand what a proposal is and the purpose it serves.
When you meet with a prospect you probably think they are a great fit for what you offer because it appears they have a need and you have a need—to make a sale.
So you do your dance and dog and pony show...
They act impressed and mildly interested...
You can tell because you asked them if they'd like a proposal and they said "Sure. Why not?"...
You work tirelessly for hours and days to put together a whiz-bang proposal...
Fire it off to your "hot" prospect...
And then it's crickets.
Welcome to what Oren Klaff would call a "beta trap."
The Alpha prospect put you in timeout in the corner and like Brazilian Jiu-Jitsu, the best way to defeat a punishing move...is to recognize it's coming and prevent it from happening in the first place!
To close big deals you must quote big deals.
To justify quoting a big deal you must solve an even bigger pain.
To solve a bigger pain you must diagnose the cause of the pain that is hurting your prospect.
To have your prospect follow your prescription as outlined in your proposal, they must admit they have a big pain and they must quantify it.
- "Yes, Wes, this is costing us $5,000 per month and it has been a problem for the last six months and it we see no way to make it stop."
- "Yes, Wes, this has cost us $100,000 over the last year in lost sales plus turnover in our staff and we're at risk of losing our largest client if we don't resolve this during the current quarter."
Once the person that controls the purse strings has confirmed their pain, put a dollar amount on that pain, and has admitted they must do something about it now, then, and only then, will I submit a proposal as a confirmation step—a summary of what we've agreed to—instead of a sales/persuasion/negotiation step.
Furthermore, I want to submit fewer proposals this year than last year!
"Wait, Wes! What?"
"But, Wes! I have to give proposals to get an order. That's how things are done. Prospects meet with us or find us online. They call or email asking for a proposal and I give it to them. Sure, some disappear (and probably use my quote to get a better deal with a competitor) and some come back wanting me to change it (often at a lower price). But if I don't submit proposals how will I make sales? This is how we start the dance."
Do you see the problem here?
You incorrectly use proposals as a:
- "Quote and hope."
- Hail Mary.
- Wham, Bam, thank you, Ma'am shortcut.
- One step sales tool.
- Beta's response to the demands of the Alpha prospect. (If they're calling you for a quote the chances are good they are simply price-shopping, which means someone other than you [think competition] is telling them what they need.
None of these will work out well nor will they lead to longevity and stability in your sales career.
When done properly the proposal should be given at the end of a thorough dialogue with the prospect who both admits his issues and has quantified their impact on his bottom line. Until your prospect says "I have a problem and it's costing X dollars" you've not reached a mutual agreement as to how best to proceed to solve his issues.
From now on have the discipline to slow down and refuse to give a proposal until the prospect answers at least a few rudimentary questions about her situation so you be sure what you offer is
- a fit,
- affordable, and
- not just some silly exercise where you are being used as that "third bid" to meet the needs of the prospect's CFO.
In other words, if you are using proposals to "poke and prod and explore and fish" the needs of the prospect you have lost control of the sales process.
"But, Wes! Prospects are so demanding. The competition is so tough. If I don't give them a quote as soon as they ask for it they'll call the guys across the street and I'll lose the deal!"
How much does it cost to create a proposal?
Take your salary and that of everyone that must review/contribute to the creation of your proposal and multiply everyone's hourly rate times the time it takes to create the proposal.
Then do it every time you make changes to the proposal.
Then add the office expenses such as power, A/C, PC costs, etc. then subtract how much margin you give away as you are forced to reduce the price by the 3rd or 4th iteration of the quote.
Finally, add the lost opportunity costs of no referrals or add-on sales made by that prospect who views you simply as a low-cost provider and continues to price shop every time she has a need for what you sell.
If you do that math you'll
- Get sick to your stomach.
- Probably need a drink.
- Have to leave work early.
- Get mad as hell if you have any pride whatsoever and will commit to changing how you knee-jerk respond to blind requests for quotes and proposals.
In the 30 Day Sales Growth program I cover how to do all of the above and a whole lot more.
I'm so confident my approach works I offer you a full year—365 day—money back guarantee.
How's that for putting my money where my mouth is?
Can you do the same?
You will after you apply the lessons you'll learn in the course, but I digress.
When To Discuss Price In Negotiations
Provide the price proudly and provide proof.
While it's true that dogs can sense fear they don't hold a candle to humans.
In fact, humans can sense uncertainty and doubt in a sales person faster than my seven kids can blow throw a gallon of milk.
When I want to stump a belligerent trainee I just ask him how much his gizmo product is. A salesman's hesitancy to name the price of their offering when face-to-face with a prospect is the most damaging mistake that can be made.
Meet The Price Objection Head On
When it comes to how to overcome price objections in sales, the best thing to do is to meet it head on.
When the prospect asks,
"How much is it?"
...the next sound to slide smoothly from your lips needs to be a dollar figure.
"But, Wes, but, Wes. You just don't get it. My business is DIFFERENT! I can't do it that way. I need all sorts of information before I can give them a price."
Shazbot! (That's an Orkan word for "not.")
"Oh really, Mr. Whisperino? What do you say to the prospect that asks, 'How much is a laptop computer?"
Here's how I'd reply
"$8,967.00 is the most I've ever heard of anyone paying for a Mac Book Pro with a 2.7GHz 12-core processor with 30MB of L3 cache, 64GB of memory, a 1TB PCIe-based flash storage, and dual AMD FirePro D700 GPUs with 6GB of GDDR5 VRAM each, but I can also get you an Acer Chromebook for $249.99 but I doubt you're looking for either of those.
"A fantastic machine for the family—the kind that can handle a little wear and tear—runs between $700 and $1,200 depending on the unique combination of processor speed, hard drive size, memory, screen size and pre-loaded software.
"Some clients focus on the processor, others on storage, others on memory and some try to average them all out.
"Are you dead set on the processor, storage and memory, or are you open to some recommendations?"
Easy, peasy ain't it?
Your goal in selling is to:
- Put your client at ease.
- Instill confidence.
- Get them to focus on your message.
- Make them think they are in control.
Delivering Your Response To The Price Objection
You do that by listening for your prospect to "pop the price question," and then you stand tall, lean in towards the prospect a bit, smile just a tad, maybe tilt your head slightly to the right with your eyebrows raised, take a deep breath and let the whole price roll off your tongue.
Try reading aloud, in one continuous utterance, the paragraph above about the MacBook Pro and you'll see why you need to take a breath.
You are going to deliver, without pause, your price and all of the whiz-bang features and goodies that are included at your great price.
Once a price is out in the open, your prospect's anxiety will vanish. Furthermore, the longer your list of included features for the price you gave, the more your price is reduced in the mind of your prospect.
"'Anxiety will vanish?' Can you elaborate on that a bit, Mr. Whisperer?"
When a prospect has to ask how much your prices are it's kinda like a business owner asking the IRS why they haven't been audited in a while.
It just doesn't feel right and it creates anxiety because a) it's your job as the sales professional to provide the price and b) they feel it's like waving a red cape in front of a bull, thereby inviting you to dig your heels in, lower your head, snort out some smoke and charge full speed ahead."What a great question. Come on in out of the heat. Have a seat in my office. Let me get a little bit of information from you. We're all about service here so make sure you fill this out completely. We won't SPAM you or call you too much but we do need your cell phone - both cell phones - and all email addresses you use as well as any fax numbers, pagers, PO boxes, favorite restaurants, clubs and associations you belong to and your social security number!"
"Not me. I don't push them around like that but it is important to list ALL of our features and benefits before before I give them a price."
Ok. Let me ask you something.
When you're toe-to-toe with a prospect that walks into your store and asks,
How much are you asking for the white Ford Excursion?"
do you respond with,
"You're a man after my own heart. Man do I love that truck. That dream machine was treated with tender-loving care.
"It's a one-owner truck that was garage-kept, never towed anything and was only used by a little-old lady to transport her hand-made quilts to her church just 1.3 miles away once a week.
"It has the proven and tested 7.3 liter diesel that isn't made anymore, you know? It comes with a 30 day, 1,000 mile warranty..."
"Ah. Well. I guess."
When you ignore, avoid, skip, or otherwise dance around a question—any direct question—but especially the price question like a politician—you might as well put cotton balls, ear muffs and duct tape over your prospect's ears until you finally screw up the courage to give a price.
The time between when your prospect asks your price and the time you provide it.
The more you delay and stall, the greater the likelihood your prospect will think,
This guy is a ripoff artist. His prices are almost as inflated as his ego. If his prices were great he would have already told me."
I know what you're thinking:
"Oh, yeah, Wes? That's all fine and dandy and sounds good here in training but the internet is killing me.
"What about when a prospect knows everything? They come in armed with print outs and spreadsheets and they think they know exactly what make, model and features they want and need but they NEVER do but they think they do and they just bludgeon me with wanting to know my lowest price?
"I've been in this industry long enough to have lived through every nightmare scenario on the planet when it comes to delivering what my clients truly need, which is why we offer so many options and accessories standard with every purchase, which MORE THAN justifies our slightly higher prices.
"If I don't get a chance to mention and describe all of those included bonuses I'll just run my prospects away right into the waiting arms of that back-stabbing, conniving, manipulative punk of a 'competitor' across town, and I'd rather give my stuff away than give that jerk any more business!"
Marie Curie said,
Nothing in life is to be feared. It is only to be understood."
What is your most dreaded sales scenario?
What keeps you awake at night when it comes to selling and interacting with clients and prospects?
What question makes you throw Dry Erase pens, kick dogs and slam your computer mouse on the table?
Hi. My wife and I have been researching trucks for the last 4 weeks. We have the Blue Book value and manufacturer's cost on the Excursion we want. We've called 4 dealerships, been on eBay, and my best friend from high school has his dealer's license and is willing to buy us a truck at auction over in Hillbillie County in the south part of the state. So with that in mind, what is your bottom dollar on an Eddie Bauer Ford Excursion, 6.0 liter diesel, 4x4 with under 80,000 miles on it?"
You know how to respond now, right? It would sound something like this...
"Thirty-three thousand nine hundred and eighty eight dollars, which includes, at No Extra Charge...
- a full tank of gas,
- four Lloyd Premium Plush floor mats,
- a full size spare,
- four new Michelin tires,
- a one year, 14,000 mile bumper-to-bumper warranty,
- a free loaner car during any service work we ever perform on your truck,
- and 10 free oil changes all at no extra charge.
"By the way, I nearly forgot:
"...On the 6, 12, 18 and 24 month anniversary of your purchase we'll perform our Presidential Deluxe detailing of your truck, which includes
- a hand wash,
- removal of all bugs and road tar from your vehicle,
- clean the wheels & wheel wells,
- dress tires & wheel wells,
- clay buff exterior,
- buff exterior paint to remove light surface scratches,
- and hand wax.
- On the interior we'll vacuum completely,
- clean all cracks and crevices,
- detail dash, console & door panels,
- clean and condition the leather,
- clean the windows and steam the carpets and upholstery.
"There is a lot of interest in this truck. Would you like to put a deposit down to hold it for 24 hours until you can come in for a test drive or would you like to look at another vechicle?"
Now do you see what I mean when I say,
The longer your list of included features for the price you gave, the more your price is reduced in the mind of your prospect"?
Simply inhale and name your number.
Make sure your differentiators are large enough to justify the breath and the price you just provided.
In an ideal world you have addressed pricing up front BEFORE you go down the path of responding to Requests for Information (RFIs), demonstrations, proofs-of-concept, etc.
If your solution is 50% or 100% or 500% more than your prospect could ever dream of being able to pay then find out in the first meeting rather than dancing around the price issue for days, weeks or even months.
But sometimes, despite your best efforts, your prospect wants to haggle over the price in your proposal or they ask for concessions when you thought it was a done deal.
There's an old saying in the world of proposal negotiation:
If you're not ready to walk, you're not ready to sell."
When you're needing the money from a sale your judgement gets clouded. You go against your little voice and that always comes around to bite you in the rear.
If you have done everything right up to this point (meaning you followed my sales Agenda) you have more power than you think.
Option 1: refuse to negotiate and be willing to walk.
Sometimes this has to happen to maintain your own sales psyche.
Sure, it's frustrating, but a deal's a deal.
If circumstances changed since you first met with the prospect, i.e. budgets were cut, personnel changed, etc., sometimes they just can't pay what they said they could at the beginning of the process.
However, if they are simply playing hardball it is usually best to walk away with your pride and honor.
If a prospect lies to you before they give you their money, they'll be a real pain to deal with once they pay you.
Option 2: Quid Pro Quo: offer to lower your price by taking away some options.
"Wow, Ms. Prospect, it's too bad your budget has been reduced. I'd be happy to lower your Infusionsoft Kickstart price from $2,000 to $1,500 to make it easier for you to start. Keep in mind, though, you'll receive fewer private training hours. Is that acceptable to you?"
Option 3: (my least favorite) A modified Quid Pro Quo: sometimes you need the deal but you still need to get some concessions for accepting a lower price.
Ask for a testimonial up front.
Ask for 10 referrals starting with three right there on the spot.
Literally have them sign the agreement, hand over the money then pick up the phone and call three ideal prospects and have them say,
"Joe, Mark here. I just signed a deal with Wes Schaeffer, The Sales Whisperer, to train our team and help us improve our marketing and you need to meet with him, too. When's your next opening on your calendar?"
If you're selling to a large corporation ask for internal referrals as well.
Have them help you navigate the company to make additional sales to the same company, thereby justifying your acceptance of a reduced price.
At the end of the day, your sale should help both you and your client.
It cannot be one-sided and you are in control of ensuring you both win.
Understand the value you bring to your clients and take pride in your prices because being reassuringly expensive ensures your longevity, which ensures your client's service and support for years to come.