I’m occasionally asked by clients or business colleagues: “What actions can I take that will have the biggest effect on my top line (revenue) or bottom line (profit)?” This is a great question and cannot be oversimplified. After all, no two companies are alike, and each set of solutions has different competition, sales ecosystems, etc. However, there are concepts that are true for any organization regardless of circumstance.
The short answer to the above question is to infuse the entire sales organization with the insights, strategies and techniques of effective sales negotiations. I answer this way because I have experienced and seen hundreds of millions of dollars in deals that have been achieved because individuals from reps, to sales managers, to CSOs and other executive team members, have understood and practiced positive sales and negotiation skills. That is why we have made our company’s mission to “improve our clients’ profitability by providing the tools and training necessary to win wisely in their negotiation activities.”
As Hank Barnes of Gartner reports in The High Cost of Buying Complexity, both sellers and buyers are frustrated by the amount of time it takes to get to a decision. In fact, buyers report that it takes them 97% longer to buy than anticipated. Worse yet, many sales engagements result in a “no-decision” and leave both parties feeling frustrated and not likely to do future business.
The factors that lead to these poor outcomes include too much complexity in the sales process and the involvement of more and more individuals on all sides. Fortunately, learning about, and practicing, effective negotiation strategies can help you reap three big rewards.
Reward 1: Improved Deal Win Rates
Everyone, from the business development rep (BDR) to the sales rep, sales manager, and CEO, wants to see better close rates. Put simply, an improvement of 10% in this one area, if nothing else changes, can have a profound impact on your team, your customer and the productivity of the entire process. Improving win rates will also enhance your revenue and profit results. But what in your sales negotiation quiver can help you get there?
One tool we use throughout the sales negotiation cycle is the Risk/Reward/Action analysis. If the risks of action for the customer, i.e., of making a decision in our favor, are not overcome by the risks mitigated and the rewards gained of taking the action, it is highly likely that the deal will not close … unless we take steps to address those “risks of action.” For example, certain new implementations of technology solutions take too long and will jeopardize the customer’s return unless you can demonstrate that you have previously delivered the solution in a timely manner under similar circumstances. By looking at a risk/reward matrix early in the cycle, you can develop a strategy to mitigate risks or make a decision to focus on a different opportunity that has a higher chance of success. This will definitely improve your win rate!
Reward 2: Shortened Sales Cycles
Many sales people offer buyers deep and limited-time discounts, or other incentives to close deals by certain end-of-quarter or end-of-year deadlines. However, as discussed in my book, Negotiate Wisely in Business & Technology, the dynamic of shifting leverage is critical, especially in sales negotiations. At end of your fiscal quarter or year, buyers almost always have the leverage because they know sales people are desperate to close deals and make quota.
As a result, the incentives sales people give are intended to help compel or motivate the customer to act. Then, by definition, any such incentive must expire by the deadline. Otherwise, the leverage doesn’t shift away from the buyer as the buyer is not being given additional reason to act. As we heard from a recent customer of one of our clients, “I’ll get the incentive anyway.” If the incentive does not come off the table, there is no reason to offer it in the first place!
In fact, if you extend the incentives such as a reduced price beyond the deadlines you set, you will prolong the closing process, and impact both your credibility and your margins! Put yourself in the shoes of the customer: “If I am the buyer, I will not act until the benefit of my acting outweighs the benefit I perceive of continuing to wait for future incentives or better solutions.” This leads us back to building a compelling value proposition for your solution and relying on value-based leverage to compel the customer to make the decision now rather than waiting. If you feel that additional incentives are necessary to close now, make sure they come off the table when “now” ends.
Changing the end-of-period incentive habit is a hard, but important, lesson to learn. That is why we prefer to utilize a principled negotiation strategy: one that uses only principled concessions (rather than arbitrary ones) that are made for credible business reasons that can be explained to the customer. When the customer sees that you will only make principled concessions, they will feel more comfortable that they received a good deal when you decline their next negotiation request. This creates an environment in which the customer is less likely to ask for things that have no sound business rationale and in which both sides will know that the process has a rational end – and one that happens faster. This and five other strategies are explained in our executive brief, Six Actions to Shorten the Sales Cycle.
Reward 3: Better (and More Profitable) Relationships
Given how much of our life is spent negotiating, we should enjoy the process. This includes you and your prospect or customer. Fortunately, you can enjoy the process more if you know what you are doing, the goals you and the customer are after and why. This enables you to have a principled negotiation approach that will result in good relationships. Good business relationships that result from successful negotiations lead to additional deals and greater revenues and profits.
We’ve all had the experience of dealing with a sales rep who insisted on pitching us in a way that has nothing to do with our needs. Don’t be this type of rep. If you properly focus on the Mandatories (what the customer really cares about) you will minimize conflict and reduce acrimony.
Even a customer who knows you have quota pressure, and has leverage because they have choices, will respect your effort to explain why and how your solution impacts their business. After all, even if they like you, they care more about their business than yours!
This is even truer when you have the leverage because they have no choice but to do business with you, either because they already standardized on your solution or because you are the only game in town. If you win only because they feel they have no adequate alternatives, they may do business now, but will switch to another partner or supplier as soon as the opportunity presents itself.
However, if you win because they feel like they are getting value bacause your solution has a positive impact on their business, they will voluntarily continue to do business with you. That is why you need to continuously affirm your value after contract signing (we call this Afirming Client Value or “ACV”). ACV builds positive leverage for continuing your client realtionships!
What can be better than a sales negotiation process that results in higher win rates, shorter sales cycles and better relationships? This is the trifecta of good sales negotiations. Let us know how we can help.