I’m sure you’ve seen limbo dancing at some point in your life – you know who I mean, those folks moving to Caribbean rhythms, leaning backwards and dancing under a horizontal pole, hoping not to touch it while moving forward. When they are in a competition, the stick will be lowered gradually until only one dancer is capable of dancing under it.
Imagine you are one of these dancers and you’d like to win. Would you put the stick to the lowest point you ever managed to get through right at the start? Or would you start with a decent height, watch the competitors and make your dancing look harder than it is – just to confuse your competition a bit? Chances are you’d choose the latter.
Now let’s talk about your prices.
When clients talk to sales reps, even the very eloquent sales people often start stammering as soon as the question “how much is it” is raised. They fear to be rejected because of a price which is “too high” and therefore struggle to communicate price in a strong and self-confident way. Just imagine you’re the customer and you’re confronted with an under-confident sales person when talking about prices. There is no doubt you would start negotiating for a better price, even if the mentioned price would be fine with you.
Due to a number of reasons like lack of confidence, little knowledge about the competitive advantage over other vendors, and the absence of insights into clients’ needs, too often the first price mentioned by the sales person is already on the lower end of their price range.
The thinking goes something like this: “If I start too high, the client might immediately send me away. If I start very low and tell them that this is already a very good price, they will be more likely buy from me.”
This approach is like starting the limbo at your lowest height. You don’t have any flexibility to go lower, except for the big risk of losing it all. Just imagine you’d be competing with weak opponents and you could have won the dancing competition at a very convenient height. Starting too low increases the risk without any need.
Sell high first
Just imagine, the client would have bought 25% above your lowest price, but you never tried to sell at that price.
So, the next time you start talking about price with your customers, always remember how a limbo dancer would act.
Of course, your first price has to be reasonable. No dancer would start with a pole he can just walk under without leaning backwards. Your first price might be high, but it mustn’t be insanely high. Even if there is no competition! Because one day your client will find someone else and will never forget that you took advantage of him.
Proper pricing discussions
For a proper price discussion, pay attention to these topics:
- Be aware of the weaknesses of your competition and the real need of your client. You will be more competitive if you show your client how he can achieve his results with your solution and highlight where you are strong and others are not.
- Get a sense of your clients’ budget and the urgency of their project/request. When I sold enterprise software, I always asked my clients questions like, “Are you looking for a solution for Euro 5 000 or 500 000?” I used extreme numbers and I did it on purpose, because this elicits an immediate reaction. If you ask “R5 000 or R6 000?” What would you expect the answer to be? R5 000 of course! Extreme numbers give room for negotiation. The more urgent the request, the more they will focus on a solution solving their problem instead of just looking for a bargain.
- Never, ever start with the lowest price. Never. You need to have some space to maneuver.
- If you need to reduce the price, request something in return from your client. It can be a shorter payment period, a guaranteed number of orders, a reference letter, etc.
I have never had a price negotiation where I lowered the price and did not get anything in return.
Accepting low prices
Finally, if you are going to accept a low price, be aware of the position you are putting yourself in when doing so: It’s extremely hard to increase the prices up to the fees you really need to make if you have already sold for the lowest possible price! To take this client from a low price to an appropriate fee might be a task impossible to achieve. And maybe this client with that little margin keeps you away from another client with much better margins and business.
I learnt this lesson the hard way with one major client. In the beginning, I gave him a very good price because it was a huge opportunity. We made some good deals, but it was almost impossible to raise the prices. After three years I made almost 30% less money with him per day compared to other clients. So I ended up preferring to work with other clients instead of him.
So, be careful with your pricing, just the way you would act with the stick if you’d be a world class limbo dancer: Never start too low.