April 9, 2015, Dr. Bill Dyment, Co-Author of Fire Your Excuses
It was a pleasant fall Vegas afternoon as I emerged from the cab in front of the Bellagio Hotel, the sun was still bright and blinding in the November sky. I was exuberant. Professionally, I felt like I had finally arrived. I had been chosen to deliver an all-day session for a Fortune 500 company at a 5-star hotel. It would be an event to remember. Not only were the seminars a success and the audience engaging, I was treated like royalty complete with lavish dinners, a show and a great room overlooking the famous lake and fountains.
Just one bubbly but honest comment from the organizer gave me pause: “We were delighted to learn your price was only X, in truth we would have paid double!” I am so glad that I enjoyed all the extras, because the truth was, in a very real sense, I had paid for my 5-star room, dinners and the great show!
I wish I could say that I instantly began “right-pricing” my speaking and consulting services, but a decade later I am better at it than ever. Equal parts “nice guy” and, at times, a second-guesser of my market worth, in the past, I have been an easy mark for better negotiators.
If you have your own business, sell a product or service on the side, or recently asked for a raise or interviewed for a new job, you may be able to relate to capitulating on your price or salary in the face of hard bargainers or sad stories of budget woes and personal finances. The good news is, I am confident that applying some of principles and strategies below can put hundreds, even thousands more in your pocket and add to the financial security of your family.
Underpriced is undervalued
Tweet ThisSome years back, in an effort to make my consultation services more affordable to all, I priced my services at the lower end of my profession. Feeling a bit self-righteous about it, I was shocked to her one client say; “We interviewed several firms for our project. It came down to you and another group who charges considerably more. Since we had to choose, we figured they had to be more experienced to command and get their fees, so unfortunately, we have decided to go with them.” Wow! What an instant, albeit painful, education!
Pat Flynn, host of Smart Passive Income, puts it this way: If someone offered me a PX90 for free (an excellent but grueling home fitness course) I would be delighted but I probably won’t complete it. I know that if I pay nothing for the costly program, there’s little chance I will finish it. It has to cost me something significant to perceive it as valuable.
What can we learn from these stories?
- “Low ball” pricing often raises “red flags” in the mind of potential buyers about your experience (how competent are you) and savvy (how much you know and believe in your market worth.)
- As a general rule, people do not value products or services that cost them too little.
Bottom line: Your attempts to generate quick sales can turn out to be a lose-lose. People may be reluctant to buy from you and when they do, they may exhibit limited follow-through and respect for you, the seller.
Set or (reset) the selling “frame.”
Oren Klaff observes in his masterful book, Pitch Anything, that wise sellers must be ever mindful of the “frame” or mindset that each party brings to every sales interaction.
Here is a common scenario: Kyle, a potential customer, reaches out to you by phone. First peppering you with questions about the product or service, he then begins grilling you about your experience, competency and prices. A negotiator like Kyle will often drop into the conversation: “I am currently talking to several others (his thinly-veiled invitation to a bidding war)” as an attempt to further weaken your bargaining position and make you doubt your prices. Doing your best to answer his questions, you are now on the defensive, finding yourself trying to prove that you can, in fact, do the job better than the “rest,” or that your product is of high quality and fairly priced.
Kyle has successful imposed his “frame of power” on the sales conversation. You will need to take it back. If you don’t, even if you get the sale, when it comes time to deliver you may feel resentful having given away valuable price or other concessions.
What to do: Politely stop Kyle, mid-interrogation, and say, “I want to answer all your questions but it is important before we go further to ask YOU a few questions to make sure you are good fit for the customers/clients I serve. Not everyone is a match for the work I do/products I sell/my skills, etc.” What does this do? It rebalances the power frame. You not just one of 10 potential vendors or job candidates “awkwardly lined up against the wall of the gym at a high school spring formal hoping someone will ask you to dance,” you are letting your buyer know you are in demand and you get to choose too.
Try it. The “energy change” in the conversation is palpable.
“Closing the sale” or “cutting your losses”
Over time, you will develop a keen sense of when to “go for the goal” and when to “punt.” For example, I know that if I have more than X number of back-and-forth communications or perform X number of unpaid activities without a sale, it’s time to immediately ask for sale and walk away quietly if the buyer doesn’t make a purchase. I know what the “right buyer” needs to decide and if I exceed that by a significant margin, the prospect, however exciting, is not a fit, at least not at the moment.
How to easily offer something for everyone (while maintaining the perceived value of your product or services)
Are you losing sales because you do not offer products that appeal to a wide range of buyers?
A simple technique is to offer three-tiers of products. The first level is for the least committed and is easily affordable for anyone who is interested in taking a small step to learn more, solve just one problem, or get just a quick taste what you offer.
The second tier is where most buyers will focus. It offers a more comprehensive solution but is not the Cadillac suite of all you offer. You should expect and plan that this tier will generate the most number of sales.
The third tier is your complete suite of services and add-ons. A smaller number of buyers will make this purchase but they will be your most motivated, enthusiastic customers. Treat them very well. They are your VIPs.
How should you price your tiers? Your second and third tiers should be a bit closer in price than tier one and two.
For example: Tier 1— $200— Starter package,
Tier 2— $300— Comprehensive package,
Tier 3— $450— Premium
Shane and Jocelyn Sams, hosts of The Flipped Lifestyle Podcast, say that when it comes to pricing, “97” is the new “99.” They suggest you price your products so as to end in “97” cents or dollars not “99.” For example price your products, $7, $97, $297, etc. Try it.
You determine your prices (with the help of the market.)
Dr. Alan Weiss, well-known management consultant, says that if you can’t look into the mirror and say, “My fee is X” without feeling self-conscious, you are certainly not ready to charge it. I remember the first time I asked for 5-figures for a project. I knew I was fairly priced based on what my colleagues who performed similar work charged, but I had never asked for that much before. There was a psychological barrier to be crossed and a fear that others would simply say, “that’s too high” that needed to be overcome.
If this is you, you are certainly not alone. The world is full of highly skilled, extraordinary entrepreneurs and seasoned salaried professionals who ask for far less than they are worth—throughout their entire careers!
Missing negotiation skills or how I almost paid a client $1000 a word!
Years ago I was asked to apply to head a consulting project at a well-known university. To my delight I was offered the position. Next came the negotiation of compensation. Fortunately, knowing how green I was in such matters, I had the opportunity to speed read two classic books on the topic, The Art of Closing the Sale by Zig Ziglar and How to Negotiate Anything by Herb Cohen, over the weekend before the final negotiation meeting. Armed with the new knowledge, I entered the final interview feeling ready.
Everything went smoothly in the meeting until we finally got down to my fee. I was immediately nervous; as the offer was $10,000 lower than what I believed I needed to execute the duties outlined in the project. But, unlike the past, this time, because of my reading session, I said nothing. Truly it was “the pause that refreshes.” I felt awkward, my interviewer felt awkward, then finally she broke the silence by saying, “That’s a little high. I am not sure we can do that.” I paused again, and smiled.
In the past I would have filled the empty air and said something to the effect of “Maybe we can split the difference?” Instead, this time I replied, “Why don’t you see what you can do and get back with me.” She agreed. A day or two later, she said, “I double-check what we have available, we can offer you what you asked for.” It worked!
If I had used the phrase, “Could we split the difference,” I would have been paid $5,000 less. In fact, every word of that 5-word sentence would have cost me $1000! What about you? Can you hold off on any salary discussion until the other person brings it up? Can you allow for awkward pauses and silences? It may be the best negotiating technique you can possible use.
Never offer a “perceived value” discount
If you have taken the time to carefully price your product based on your skills, materials and market need, your should never lower your price because a client disagrees. There is a huge difference between someone who thinks your product isn’t worth what you are charging and someone who can’t afford it.
Many wealthy buyers are well skilled in negotiation and will always ask for a discount just because often it works. Others will attempt to discredit your abilities, experience or services in an attempt to do the same. You certainly do not want to give a discount to someone who doesn’t need it or someone who insults you to get what they want. Either sale will lead to resentment and will likely poison your partnership in some way going forward. For each of these cases, politely but firmly refuse. In the latter instance, you may wish to walk away altogether.
One family pleaded they needed a discount due to financial hardship. I agreed only to learn about the exciting progress of their inground pool installation each session from their child. Others past discount recipients have shared their latest adventures in Vegas, how much they drank and gambled that weekend, and their recent spa adventure.
What is the employee’s or job candidate’s dilemma when it comes to perceived value? In this case, the product you are selling is 100% you! One friend described how, as a trusted leader in her organization, she doubled as a personal assistant to the CEO and his wife while he recovered from extensive knee surgery. She would stop by their home twice a week to check on him and make sure he was abreast of everything she was taking care of back at the firm.
On each visit, the owner soberly reinforced how everyone “had to pull together as a team” during this critical time. During the owner’s recuperation, however, she was also shown the ongoing progress of the construction her boss’s second beach house. So, when it came time for reviews at the end of the year, she was sure she would be awarded a handsome raise. Instead, the owner conveyed to all how tight things were and, unfortunately, there would be no raises or bonuses. Heartbroken, she began to look around for other work. In a few short weeks she was hired at much higher salary for less pressure and has never looked back. It was a tough lesson to learn but it was instructive.
People pay for what they believe is important to them. In the minds of some negotiators, lavish vacations, pools, wild cocktail parties, vacation homes, and spa treatments are viewed as essential and sacred, while your services are secured at bargain basement pricing with a well-oiled tale of financial woe. Don’t let it happen to you.
What about the more subtle inquiry: “Is your price negotiable?”
John Patrick Dolan, storied negotiation coach and attorney, has the perfect response for this query, “Is your price negotiable?” He simply says either: “Of course, what would you like me to take out of the deal so we can lower the price?” Or, “What will you do for me in exchange?” His point is simple and direct: “Negotiation” is defined as both parties giving up something in order to fairly modify the deal; not unilaterally lowering one’s compensation because someone asked you, especially if they can afford your prices.
Packages, packages, packages.
If you sell products and services, whenever possible sell packages, not individual items. The effort required in selling a package is often identical to selling a single item. Promote your programs, packages, and services, not your individual offerings. Of course, don’t prevent buyers from purchasing individual products, but do not put your energies into these sales. They take too much time.
If you feel that paying for a package of products or services is too much to ask, allow the buyer to get to know you by purchasing a single item on a one-time basis. Then ask them to purchase a package. You will be glad you did. Not only will you get to work with your new client over time without having to make repeated small sales, you will be able to increase your cash flow as not every client will take advantage of all their pre-paid services. Packages, programs and bundles are a win-win-win as they move you away from fee/hour work.
Bonus Tip: Drop the lowest 15% of your business each year—gasp!
In his illuminating best seller, Essentialism, the disciplined pursuit of less, Greg McKeown affirms the oft-cited challenge to look at the least profitable or enjoyable part of your client base or work and drop them! Who are those clients that demand much but bring little satisfaction to your life or income to your business? Usually they are the bottom 15%. Have the courage to gently drop them or refer them to others. Then focus on the two to three areas of business, work or life you enjoy the most. If you are like many, in six months or less you will have replaced the income you lost attempting to service these high demand, low return customers. Do it. I dare you.
Have a sales strategy you would like share? I welcome your comments below.