Your customers and clients want several things from you as their supplier. They look for fair price, quality products and a timely service, although not necessarily in this order.
Surveys of sales groups over a 20-year period asking what they thought was most important to consumers have revealed low price comes first, quality next and service last.
Three elements need to be understood in selling situations if you’re going to effectively deal with the challenge of customer satisfaction.
- First is price which is what we, as consumers, pay for what we buy.
- Second is cost – which is what it costs us over time, what it costs us if we do it wrong, do it late or not at all.
- Then there’s perceived value. That’s the value we expect for the money we pay.
Are cost and price the same thing?
Most consumers tell salespeople they want a low price – when what they really want is low cost. Do customers want the cheapest or do they want the product or service that best solves their problem, answers their need or fulfils their desires?
The truth is, most prospects or clients want their problems solved. They recognise they get what they pay for. They also know that the distaste of poor quality lasts far longer than the sweetness of the tantalisingly low price.
Buyers will object to price when they feel what they’re being asked to pay is higher than the perceived value of the transaction. When an ineffective salesperson encounters price resistance, they usually lower the price but it’s not usually a price or cost issue at all, rather one of the perceived value being too low.
Related: Selling Essentials for Entrepreneurs
How do you demonstrate value?
What can you do to raise your customer or clients’ perception of the relative value of what you are selling?
A simple way is to find out what is troubling them most and then show them how your product or service will satisfy, or overcome this need, want, or obstacle and exceed their expectations of value. This way, price will become secondary.
Real sales pros focus on value of their product or service to their customer and not the price they’ll pay. They understand that while price is an issue, it’s usually not the most important one. Price will always seem high when perceived value is low.
Talk about value, not price
The way to change the relationship between price and value in the buyer’s mind is to focus on raising the value perception. Lowering price only makes them view your original price, as well as the new, lower one with suspicion.
It’ll become evident that you don’t want to introduce price too early in the sales process, especially not before you’ve had the opportunity to build a value proposition in the mind of your prospect.
If you have a buyer who’s a price-only shopper (they are out there) you’ll need to decide what their business will be worth to you in the long run, or if it will ever be worth anything.
History has shown that prospects who make a big deal out of price, expecting price adjustments will ultimately require a lot of other concessions and extras as well. Use their attitude about price and cost as a barometer of the overall quality of the supplier / customer relationship.
Remember, once you’ve set a pricing precedent with a client, you’ll live with it for the life of that relationship and, of course, anyone they might refer you to.
How To Respond Effectively When Buyers Resort To These 5 Obnoxious Negotiating Tactics
Get over the shock, figure out what’s really going on and respond calmly.
You’ve been working with a buyer for months. You’ve had multiple meetings, developed a great relationship, answered their objections and now, you’re hoping it will be smooth sailing as you look to close the sale. Then, you enter the sales negotiation stage.
Unfortunately, not all buyers come to negotiations in partner mode, wanting to work collaboratively with you. Instead, some buyers take a more positional approach. They either want to get the price reduced or get more from you for less. Some buyers will go to great lengths to get everything in their favour, and their tactics are more cringe worthy than others.
Here are five obnoxious buyer tactics and how you can respond.
1. Temper tantrum
You’ve been negotiating for a while and are stuck working through problems. You make an offer, and the buyer says, “Ok, this is crazy. That’s insulting. I’ve had enough of this!” They get up and slam the door.
Sometimes a temper tantrum is an orchestrated reaction to price or a specific term in the proposal in order to evoke a response from you.
If this happens to you, don’t get rattled. Remain professional, and don’t take the bait. Suggest taking a short break. You can help the buyer save face by acknowledging how important the negotiated issue is for everyone involved.
Then, use a white board and illustrate the key points, and get back to the objectives and possibilities. If their objection was just a price concession request, say no. When you do so, you set a boundary. Meanwhile, keep working on solutions and move on as if the temper tantrum didn’t happen.
2. Theatre of the absurd
Imagine you say, “For this solution set over a 12-month period, that will be $320,000.” The buyer’s response is, “I don’t think so. It should be $40,000 max.”
With this tactic, the buyer asks for a lot, knowing it’s absurd, hoping to then appear reasonable by lowering demands that are still, actually, unreasonable. In this situation, you need to reverse direction. Respond immediately, and call their bluff. They had a big reaction, you have one back. Say something like, “Let me ask you, if you were me, how would you react to that?” or “What do you suppose my VP will say if I even entertained this discussion?”. Reverse direction by giving them an example of why what they’re asking for is silly.
3. Selective memory
With this tactic, the buyer conveniently forgets what they agreed to. This is why you should keep and share notes after negotiation discussions. Make sure your documentation is good, and you can avoid the issue altogether.
If this occurs multiple times, call them out on it. Say something like, “We seem to keep backing away from things we’ve already agreed to. What can we do moving forward to ensure this doesn’t happen again?” Then bring the conversation back to objectives and possibilities.
4. Good cop, bad cop
With this tactic, the buyer introduces a “bad cop” later in discussions to pressure price, change the agreement, reopen closed issues and so on. Your best response to this tactic is to bring your own bad cop to even the playing field.
Don’t blink or look intimidated. Most importantly, don’t cave. Stick to objectives, possibilities, requirements and alternatives, and focus on outcomes. Often times, buyers try to wear you down with time and pressure. Don’t cave. Make sure you stay present, and don’t rush.
5. One last thing
You’ve spent the last four months negotiating a major deal and are ready to sign the agreement. It’s close to your reservation price, but still manages to squeeze in above your BATNA (best alternative to a negotiated agreement).
The buyer sends you an email that reads, “Attached is the signed contract. There’s just one last thing we wrote into the contract and initialed – we need to put no money down, and not send the deposit as you noted. We’ll start paying in 120 days.”
“One last thing” is a tricky tactic. It catches the seller at their most vulnerable point and uses eagerness to get the deal done to wring out final concessions.
To address this tactic, you need to ask yourself whether the “one last thing” jeopardises the agreement. What problems does it introduce, if any? Are you willing to play what roughly equates to a game of chicken with a buyer? Ask questions and suggest a trade offer unless the ask is truly insignificant.
Sometimes, it’s not a game. Your buyer may be forced by company policy to say this, and may be stuck if you don’t agree.
In any case, you need to analyse the reasons, consequences and implications, then re-engage the discussion with the buyer. Remind them that the process to get final agreement includes flexibility on both sides.
As a seller, you’re going to face various types of buyer tactics. Some are more common than others and some are more challenging than others. Sellers who prepare for these types of scenarios are less likely to cave during negotiations. Buyers have been conditioned to respond in specifics ways. Your job is to uncover what’s really going on and respond appropriately.
This article was originally posted here on Entrepreneur.com.
How To Get The Most From The Sale Of Your Business
Your business is your asset of value. This has been your life’s work, and you certainly don’t want to cash out too cheaply. Here are 5 key tips for getting the most from your sale.
If you’re thinking about selling your business, there are a number of different buyers you can approach, from equity investors to competitors. No matter who the buyer is, consider these five points as you approach the large and important task of selling your business.
1. Choose the right time of year
What we are talking about here is the right time in your Financial Year. Most businesses we sell are valued on a multiple of after-tax earnings — but the question always comes up, “To which earnings will the multiple be applied?”
If, for example, your year-end is February (2018 financial year), and you consider selling your business anytime in the six months after that, then there can be little dispute that a buyer will apply a multiple to your 2018 after-tax earnings to arrive at a value.
But what if it’s now, say, October 2018 (2019 financial year)? And you are having a markedly better year than 2018? Even though you have not completed your 2019 year, there is definitely a case to be made that the value should be based on the results you expect for 2019 rather than those you achieved in 2018.
Given that it generally takes anywhere from four to six months to sell a company, by the time you are getting close to completion chances are that you will have 90% certainty on what your 2019 result will be anyway.
So, our advice is always to try and ensure that the multiple agreed is applied to future earnings where you can make a case for their being achieved (usually within the last six months of a financial year), and then to provide for an adjustment (either up or down) where the actual 2019 result comes in slightly different to your forecast.
2. Normalise your profits
When we sell private companies, we generally find that multiples fall within the range of five to seven times after-tax earnings. Clearly this is a generalisation, and many companies are also valued using a multiple of pre-tax profits, EBITDA or even a multiple of revenue.
The point is in valuing a company, and where a multiple is applied to ‘profits’ rather than revenue, for each and every rand you can add back to ‘profits’ you will receive multiple times that in sale consideration.
Adding back certain costs to your profits is called ‘normalising’ your earnings. In most private companies, there are numerous expenses that go through the books that frankly the business could do without. Some are once-off expenses, and some could relate to the employment of a family member who really does very little in the business.
Before you present your after-tax earnings to any prospective buyer, it is vital that you go through all the costs in your business and review whether these could in fact be excluded. Ask yourself — are these a ‘normal’ recurring business expense? If you can make a case for their exclusion, then remove them from your profit calculation and note down the reasons why. When the time comes to apply the multiple you both agree is appropriate for a business such as yours (and which is a science in itself) you will be sure you are then extracting maximum value.
3. Opt for an earn-out
When you sell your business, many buyers might be nervous about simply paying the full asking price up-front. They know little about your company, they don’t have the relationships with your suppliers or customers — let alone your staff.
By the same token, many sellers might be disappointed by the price they can achieve for their business when sold for a once-off consideration. The risks the buyer perceives as outlined above can often translate into a lower multiple being applied — below what you would consider as fair.
The answer to the above conundrum is to consider an earn-out — a solution that can work equally well for both parties. Essentially an earn-out requires the buyer and seller to agree on an up-front value for the company, and then for the buyer to agree to only pay a percentage of this immediately. The balance of the consideration can then be paid over a one or two-year period (or longer depending on what is agreed), and will be calculated by applying a multiple to the actual profits earned in those years.
Needless to say, there is no vanilla way for an earn-out to be calculated, and many refinements can be made to the calculation of the future consideration. For example, we often see buyers prepared to offer increasing multiples for future years, or even increasing multiples where profits exceed certain agreed bands. There are also often caps and collars applied to the consideration — the collar to ensure that the consideration never falls below a certain agreed amount, regardless of actual profits earned (to protect the vendor) — the cap to ensure that the consideration payable is never greater than a certain agreed amount (to protect the buyer).
There is no doubt that an earn-out is the best way to extract maximum value for your business — but beware the complications of such mechanisms. There has been many a fall-out between buyer and seller particularly over the calculation of profits during the earn-out period — thus impacting the consideration that both parties feel should be paid. The ‘rules’ of how the business should be run during the earn-out period, and who gets to decide on levels of expenditure need to be written extremely carefully into the purchase and sale agreement.
4. Sell your company not your business
When buyers are considering making an offer for your company, what they actually mean is that they like your business — but don’t necessarily want to purchase the actual company in which it is housed.
Many companies that come up for sale have been trading for many years, and it’s possible that there are certain ‘gremlins’ (such as hidden actual or contingent liabilities) within the company that the buyer might not be aware of — despite the warranties and representations that the company owner will be required to give at the time of sale.
We often find that buyers prefer to make an offer to buy the business out of your company, rather than take on the company itself. Whereas this might at first sight seem to make no difference to the vendor, the reality is that they could end up paying considerably more tax than if they simply sold their company.
At the time of writing, where an individual simply sells his company, he will suffer capital gains tax of 18% on the gain. If, however, he sells his business out of his company, then the proceeds of the sale will not go directly to him, but rather to this company instead. The proceeds of the sale will thus attract corporate tax within the company (say at 28%) and the vendor still has not got the cash into his own hands. To do this the company will now need to declare a dividend for the proceeds of the sale, and this in turn will be taxed at 15%. The result of the above is that the vendor might only see just over 60% of the gross consideration from the sale compared to over 80% had he simply sold the company.
Obviously, tax positions vary for companies and individuals (and also trusts), but there is no doubt that the prospective vendor should seek advice before accepting any offer to make sure he nets the most out of the sale he can.
5. Remove excess cash
This might seem like a fairly obvious one, but it’s surprising the number of company owners who potentially leave too much cash in their business on sale.
When a buyer makes an offer for a business, their expectation is that the vendor is leaving sufficient working capital in the business to earn the future profits for which the buyer is paying. So, one of the key calculations that must be done prior to sale is a review of historical working capital to see what this ‘sufficient’ level actually is.
What we often find is that the cautious company owner runs his business with a good deal of cash sitting in the bank — mostly to help him sleep at night and so not to have to worry about the peaks and troughs of day to day cashflow.
The danger is that the buyer comes to view this level of cash in the business as ‘normal’ — and hence their expectation is that this level of cash will also be sold with the business. The reality, however, might be that the company could actually run on much less working capital, and any troughs in the cashflow could be covered through a small overdraft (without threatening the value of the business or adding to its risk).
Before considering the sale of your company, it is therefore worthwhile having a look at your working capital position, seeing whether you could apply for a small overdraft, and then removing as much excess cash as possible prior to the sale by way of dividend. As long as you can make a case for the business having sufficient access to working capital to deliver the future profits that you have promised, then this step should not be an impediment to the sale. And the excess cash you withdraw is of course more cash in your pocket when you come to add up the total value you extracted from the sale.
10 Psychological Tricks To Boost Your Website’s Sales
The least nudge is often all that is needed to get a wavering customer to purchase.
Do you want to boost your company’s sales? Whether consumers choose to buy something or not is very often a matter of small psychological triggers. Your product might be great, but if your site isn’t set up for success, you will struggle.
Before you overhaul your site or pay thousands of dollars for a consultant, there is an easier solution: subtle psychological changes to influence your visitors. Buyers have become accustomed to shopping in a particular way, and given the high volume of incoming sales pitches they receive, filtering the noise is challenging. That gives a distinct advantage to businesses that truly understand how consumers interact with webpages.
Consequently, you should look for subtle changes you can make to boost your numbers. Doing so won’t take much time, and the impacts are easy to measure. You can run A/B tests on two different versions to see which performs better, giving you results within days so you can move forward. Here are 10 psychological tricks you can implement and test to boost your website sales and bottom line.
1. Make onboarding and shipping look free
Consumers get anchored to the initial price they see. This means if you want to charge the user for shipping or onboarding, you should include that cost in the initial price. When buyers find out about additional costs later on, it creates anxiety that causes many to shirk away from completing the purchase.
When you explain that shipping or onboarding is free, on the other hand, they will trust your brand and feel you’re doing them a favour – particularly compared to your competitors’ high-priced shipping.
2. Price your goods with a 99-cent tag at the end
This is known as the left-digit effect. When a user sees a price of R199.99 instead of R200.00, it makes a psychological difference. She becomes anchored to that 19 number instead of the 20. Plus, she places it in the 10-20 range as opposed to 20-30.
Despite it being a literal penny of difference, users will perceive your product as more affordable.
3. Offer product upgrades
Toward the end of the checkout process, offer product upgrades. Your consumer might be intent on already purchasing something for $100, let’s say. Throughout the decision-making process and checkout process, he’ll be convincing himself it’s a good purchase.
If you offer a R100 addition to insure the product at the end, for example, he’ll be more likely to buy it. He will think, “What’s a difference of $10?” because he’s already psychologically adjusted to that initial price.
4. Create a sense of urgency
Buyers are much more likely to pull the trigger when they think there’s finite time to do so.
When they believe they could buy the same product tomorrow or a week from now for the same (or a lower) price, they’re less likely to make the purchase today. When you create a sense of urgency, it leads to faster sales. This could mean showing a limited number of items in remaining stock. You could also explain that the current prices won’t stay the same for long.
These signals will push the buyer into a quicker decision. It will also make her think she’s getting a steal for either a discounted good or one that many others have already purchased.
5. Address concerns
Someone thinking about buying a product on your website might have concerns about his purchase. Is it worth the money? Can I find a better value somewhere else? Is it going to operate as indicated?
On your product page, you can address these concerns. A “Frequently Asked Questions” section is effective; you could also work the answers into product descriptions. You can explain why it’s worth the money and why it’s the best-value product, highlighting special features or materials. Doing so will preclude consumers from doing additional research or falling back on excuses to avoid a purchase.
6. Demonstrate credibility
This is one of the most valuable tricks in the book.
Adding some sort of customer testimonial or statistic indicating frequent use of your product will boost sales. This is especially effective when you include that piece of information near the “Buy Now” button. Knowing he’s not alone and that your brand is respected will give the customer more faith in his purchase.
7. Make customers feel highly valued
Customers enjoy individual attention. You should, consequently, cater to that. It could come in the form of a specialised discount, by offering assistance with their needs or by making the entire checkout process as flexible as possible.
When they feel confident that you (or your site) took care of them throughout the purchase, they’ll be more likely to hit “Confirm.”
Related: SWOT Analysis Examples
8. Follow up after the purchase
As much as we think about the next customer in line, retaining old buyers is often much more valuable. A user who buys products from you multiple times will contribute much more to your bottom line than a one-time buyer will.
This puts an emphasis on creating loyal customers. When they feel appreciated by your brand, they’ll be much more likely to follow up with an additional purchase and even to share their experience with friends.
You could send a customer a personalised email asking about her experience or, better yet, get creative. If you have her address, you could send her a custom item or offer her a discount on future products.
9. Tell your story
People like getting behind a meaningful story.
Your website can effectively share your story. Through text, video or other mediums, you can demonstrate who you are. There’s a reason you started your business and likely a problem you were (and are) trying to solve.
Making that clear to your buyers will help them see the people and the passion behind the images and numbers. Plus, a customer who believes in your story might buy your product just to support your mission.
10. Use the middle effect
When you include three similar products, as opposed to two, consumers are likely to spend more. When there’s only a cheaper option alongside a more expensive option, the cheaper one will be selected, on average. Adding a third option, however, makes users more likely to buy the middle one (which would have been the pricier option in the two-choice scenario).
This works because the most expensive serves as an anchor, making the middle offering feel like a good value.
These methods are proven to work, but each case and scenario is different. That puts an emphasis on nonstop testing. You should continue to make subtle changes to see which versions work most effectively in order to reach your maximum potential. Following these steps and collecting data on your results will lead to a fast-moving cycle and higher sales.
This article was originally posted here on Entrepreneur.com.
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