Don’t Make this Mistake When Value Pricing

price setting

“Can I use a value calculator to set my price for my customer?”

I hear this question a little bit less frequently than I used to. But at times people still come to me and say, “I want a value calculator so I can figure out how much to charge the customer.” I then ask, “Why?” and they say, “Well, because we are implementing a value pricing strategy and we want to know how much value the customer receives so that we can charge as close to that value as we can.” Because I know this isn’t going to end well for them, and despite the fact that I am in the business of selling value calculators and ROI tools, we never do these deals.

Here’s what’s wrong with that mindset. Customers will see through the ruse and resent you for not being forthcoming. And even if it worked one time with one customer, it’s not going to work a second time with that same customer. So now you have customers that don’t trust you and won’t spend another penny with you. (By the way, this ugliness then gets reflected back on us and is why we don’t do these deals.)

How to Set Your Price

We all want to maximize our pricing. However, pricing has to be done within the constraints of marketplace competition and competing alternatives, which include the customer doing nothing. Ideally, before you go to market you would perform a strategic analysis of your offering’s value and take into account the constraints just mentioned. However, you can conduct this exercise at any point during the product’s lifecycle. What you are trying to uncover is 1) where your offering’s value is unique, and 2) at what point your offering’s net value exceeds the net value delivered by your competition and competing alternatives. For more detail, read my earlier post The Value Lifecycle: Establishing Your Value in the Market.

When a Value Calculator Can Help You Set Price

If the customer answered my “Why?” question above with, “Well, we want to implement gain-sharing contracts and share the risk and reward with our customers,” that’s a different story. In this case, a value calculator or ROI tool can be very helpful in establishing the value of the shared risk and pricing. A gain-sharing contract can’t even get off the ground if the value dimensions and measurements can’t even be agreed upon. This is where a value calculator can come in handy – to define what’s being measured and how it’s being measured. An ROI calculator can be used to model various pricing scenarios. In general, the greater the price agreed to by both parties, the less the vendor’s upside is.

How do you set your price? What challenges do you face? Are you using gain-sharing agreements?

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The Value Lifecycle: Establishing Your Value in the Market

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[Image via Flickr / JD Hancock]

When Demos Sabotage the Sale

sales demo

Demos are a fundamental part of the sales process. Not only are they a great way to engage prospects, they frequently open the door to a deeper conversation about how you can collaborate to solve the prospect’s most pressing business challenges.

That said, the demo can definitely sabotage sales — particularly for anyone selling complex offerings with long sales cycles. Specifically, the number one mistake I see is showing the demo too early in the buying cycle. Sometimes it’s the sales professional who pushes too soon for a demo. Other times, the prospect asks to see the demo, and the salesperson takes the request as a good sign and leaps at the request. Based on my experience, however, you always want to pace yourself when it comes to the demo. Here are two reasons why.

1) You might not be dealing with a decision maker.

Generally, decision-makers tend to care less about demos and more about how you can solve a business problem. In many cases (particularly in the software world), the person who wants to see the demo is the person who will actually be using your offering. If that’s the case, they’re just curious to see how it works and whether they like it.

2) You become trapped by objections about features or superficial aspects of your offering.

When prospects watch demos, you want them to be in the right frame of mind. Show them a demo too early, and they’re highly likely to focus on the aspects of your offering that they don’t like or perceive as imperfections. This is how you get caught in a web of such silly objections as, “This tool won’t work for us because that button is green and our standard is blue.”

Before you do the demo, you want to be sure you’ve laid the proper groundwork for a collaborative mindset. That means waiting until prospects are 1) aware of their business problem and how much it’s costing them and 2) are committed to solving that business problem. At this stage, they’re much more likely to focus on why your tool is a compelling solution to help them solve their challenges.

One metric I favor looking at is the demo-to-close ratio. The desired value varies quite a bit by industry but you can always measure it against other salespeople in your organization. I’d bet that top performers have lower ratios. Salespeople who throw demos around like candy at a parade are wasting their time and maybe even turning prospects off.

So, when is the right time to show a demo? Obviously it depends a bit on the nature of your solution and the sophistication of the buyer. For complex sales, I generally say that anyone who asks for a demo is likely not a decision maker and should be treated accordingly. The right time to show a demo is when you know you’re talking with someone who is interested in business outcomes rather than the features of your offering. If that’s not the case, use the right questions (for example, “Who will be involved in the decision to move forward with this? Can we set up a meeting with the team?”) to bump the conversation up the decision food chain.

What are your thoughts on the right time to show a prospect your demo? Share your thoughts in the comments section.

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[Image via Flickr / ykanazawa1999]

Is the ROI of Your Offering “Too Good to Be True?”

ROI believability

Do you ever downplay the value of your offering because you’re afraid prospects or customers won’t find the estimated ROI believable?

I’ve had many discussions with B2B salespeople who say they tone down value as soon as ROI calculations start to become “too high.” For example, let’s say a salesperson’s solution costs $1,000, and their ROI calculations show that the prospect will receive $100,000 worth of value. Feeling that the resulting 9,900% ROI is unbelievable, the salesperson will say, “We don’t really deliver $100,000 of value. We actually deliver $10,000 of value.” The salesperson believes that a 900% ROI sounds more believable to the prospect.

To me, that’s ridiculous. If you charge $1,000 for an offering that delivers $100,000 of value, yes, the ROI is certainly huge … but that doesn’t mean the ROI is wrong or unbelievable.

There is no such thing as “too high” of an ROI. If you’re delivering very high value for very little price, there are one or more factors at play.

  1. Your solution is underpriced (and you should be charging more).
  2. Pressure from competitors keeps you from charging more.
  3. Competing alternatives (other than direct competitors) keep your price down.

For example, in our business of selling ROI tools, we often promise a very, very high ROI. But one of the limiting factors in setting our price is that prospects believe that they can always build a spreadsheet of their own. In other words, a homegrown spreadsheet is usually their next-best alternative to investing in a professional ROI tool. Of course, we know their homegrown solutions won’t be as good, but that’s typically something our price will be compared against. So even though the ROI on our offering is extremely high, we can’t set our price based on ROI alone, because that likely will drive customers to pursue cheaper alternatives.

If you’re truly worried about the believability of your ROI, remember that ROI is simply a calculated number, which means that you can and should show your math to the customer. Walk the customer through the numbers, step by step, using a good ROI tool. At each step, you can ask the customer, “Does this look realistic? Is this value real and do you believe that it can be achieved?” That way, the customer can see exactly how you arrived at such a seemingly “unbelievable” number. Bear in mind that this is the customer’s business case — not yours. You’ll be more persuasive if use the customer’s own numbers (not generic numbers or examples). Also, make sure customers believe in their own numbers; that way, they’ll also believe in the value you’re estimating.

Remember, too, that your ultimate decision maker is very likely the CFO (or another individual with fiscal responsibilities). If you downplay the value of your offering to make it seem “believable” to one stakeholder, you still might get shot down when your proposal reaches the CFO’s desk, because he or she will be looking at the larger picture. Specifically, the CFO will be comparing the business case (including ROI, net-present value, and payback period) to that of other projects and making a decision on which projects to fund. If there are other projects with stronger business cases, your project may not get funding approval.

If you believe in the value of your solution, you should be selling that all day long. Don’t discount based on what you think the customer’s reaction will be. Don’t even discount if the customer comes back to you and actually says, “That’s too high of an ROI.” Do the analysis with the customer and then let the customer tell you whether or not the value is realistic.

Has your ROI ever seemed “too high?” If so, how did you deal with it?

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[Image via hywards at FreeDigitalPhotos.net]

Value-Based Content Marketing Improves Lead Conversion Rates

the best

Why do B2B marketers invest in producing blog posts, white papers, reports, articles, and videos? The general aim is to attract an audience to their website so they can engage them and (hopefully) turn them into customers over time.

As I wrote last week, I believe that marketers often don’t consider ROI tools and value calculators when planning their content marketing mix, and I think this is a missed opportunity. If marketers want a high volumes of well-qualified leads, then my view is that value calculators and ROI tools can often pack a much bigger punch than other forms of digital content.

I’m not saying that traditional modes of content marketing aren’t important. But I don’t believe blogs, articles, and white papers have the power to deliver well-qualified leads in the same way that a targeted value calculator can. Someone who engages with a value calculator is demonstrating an interest in understanding the problem that you can solve for them and evaluating the economics of your solution to their business. To me, that indicates a serious buyer. Someone who wants to read a white paper might be a serious buyer — on the other hand she might just be looking for general information about that topic.

When you make a value calculator available on your site, you typically want to allow them to use it to evaluate the economics of your offering in an open fashion (not gated). In order to download the business value report generated by the calculator, though, you typically want to capture their contact information before providing the report. Someone who is interested enough in the analysis to provide their contact information to get the report is more likely to be thinking about how your offering will impact his or her business and is a more serious prospect. By definition, this person is probably a better and more qualified lead for you than someone who downloads a white paper or visits your site to read general content.

Of course value calculators are just one piece of an overall content marketing strategy. Blog posts, articles, and white papers, etc. help establish your brand and position you as an authority. (Those assets are also likely to drive more general traffic to your site.) However, I do think ROI tools and value calculators can help companies capture better-qualified leads than other types of content. If you can deliver better qualified leads to sales, then salespeople naturally spend less time chasing leads who have little or no intention of actually making a purchase. The more time salespeople can spend in conversations with serious prospects, the more likely they are to close more deals. Who wouldn’t want that?

What types of content do you include in your marketing mix? Do you use value calculators or ROI tools? Share your thoughts in the comments section.

[Image via Stuart Miles / FreeDigitalPhotos.net]

Is There Value in Your B2B Content Marketing?

Content marketing is a term that gets a lot of buzz these days, but the basic concept of capturing prospects and buyers through stories has been around for generations.

This video put together by Content Marketing World shows a full timeline of the history of content marketing, including examples. According to the video, the term “content marketing” emerged only around 2001, but the concept itself started over a century ago. The earliest example they cite is John Deere’s magazine, The Furrow, launched in 1895. (This magazine is still around, with a circulation of 1.5 million in 40 countries and 12 different languages.) The video also calls out “The Michelin Guides” put forth by tire manufacturer Michelin back in 1900 to help drivers maintain their cars and find good inns and hotels while traveling.

What is the ultimate aim of content marketing? Broadly speaking the goal is to get prospects and buyers to connect with what you have to offer through storytelling and education. The Content Marketing Institute is even more specific in its definition of content marketing:

The technique of creating and distributing relevant and valuable content to attract, acquire and engage a clearly defined target audience in order to drive profitable customer action.”

If the purpose of content marketing is not only to attract prospects but also to turn them into customers, then it only makes sense in a B2B context to focus closely on your value proposition. In other words, B2B marketers need to remember that there’s generally a big difference between the ways B2C marketers approach content in contrast to their B2B counterparts. In a previous post, “Why Branding Doesn’t Work on B2B Customers,” we made clear distinction between the “rational” world of the B2B customer and the “irrational” world of the B2C customer.

“B2C marketing efforts are frequently driven by such irrational factors as image, self-satisfaction, fashion, the need to be cool, sex appeal, etc. That’s why consumer marketing generally lives and dies by advertising. Very few consumer products or services can survive without it. Consumer ads, promotions and other image projections often establish the product’s value and create the demand for it.

The B2B world, by contrast, is rooted in the rational. Branding that appeals to irrational or perceived needs just isn’t going to work, because in the end businesses will not buy nor continue to buy things that don’t actually help their business.”

In other words, the B2B decision-maker looks for economic value when investing in a solution. While a great story might be appealing to B2B prospects, they won’t become customers unless that story can illustrate how you can help them save or make money.

Although many B2B marketers think of content marketing in terms of articles, blog posts, PDFs, white papers, video, and infographics — all great and valid forms of content that can engage prospects and customers — I don’t often hear about assets that can help a prospective customer understand the value that an offering can deliver as part of the discussion. These assets include such things as value calculators and ROI tools and I believe that they’re a critical component of a content marketing strategy if the offering is more than a standard transactional decision and constitutes a significant investment. Considering the interest the B2B buyer has in financial metrics, I think that is a missed opportunity.

What kinds of content marketing do you rely on to attract prospects and turn them into customers? Do you use ROI tools or value calculators as part of your content marketing strategy?  Please share your thoughts in the comments section.

How to Credibly Show Revenue Gains in your Business Case

Believe

One thing that B2B sellers and marketers always have to contend with is buyer skepticism around proof points — and especially promised revenue gains.

I have previously written on how to handle indirect benefits in a business case (and tips on how to address one specific category, labor savings, is discussed here). But what about sales growth?

Specificity is the key to overcoming a customer’s natural skepticism in this area. If you say you’ll increase sales by one percent, that doesn’t really mean anything to the customer. They might be thinking to themselves, “Yeah, I’ve heard that one before.” By contrast, if you say you can take two weeks off their sales cycle that starts to bring your value proposition into focus and ward off objections. Customers will be more receptive to hearing about removing barriers to closing deals or increasing the number or quality of leads than just about generic promises of revenue increases.

How We Talk about Revenue with Clients

When we talk with customers, we focus on four specific aspects of how ROI-selling can impact revenue instead of talking about generic top line revenue gains.

One, ROI selling increases the number of leads and the quality of leads. Here’s how it works. First, we work with our clients to create a value calculator. Then, the client makes the value calculator available on their website. When prospects visit our client’s website, they can use the value calculator to evaluate whether our client’s offering delivers enough value to be interesting. However, to download the report, prospects must first fill out a registration form, which then goes to our client as a lead. That results in not only more leads for our client but leads that are typically assigned higher lead scores because they have spent the time to evaluate the value of the offering.

Two, ROI selling improves close ratios. Obviously when leads are better qualified, close ratios will also improve. Also, because the tool itself provides a cost justification for purchase, using our tool helps increase the probability that the project will be approved during an internal evaluation. This will also impact close ratios positively.

Three, ROI selling shortens the sales cycle. An ROI tool helps take the legwork out of building business cases via spreadsheets. Less time on preparing a business case means a shorter sales cycle. And the business case compels prospects to make a faster buying decision, especially when you include such metrics as “cost to delay per month” (which we will talk more about in an upcoming post).

Four, ROI selling increases the average selling price of an offering. Value calculators, ROI tools, and the like quantify for buyers the value they can receive from a solution. In turn, this reduces pricing pressure because buyers already believe they are getting a good deal. It can also enable you to quantify the value of add-ons and options, thereby increasing the selling price even further.

Only when the specific impact on the buying process is established can you credibly show how your offering will increase sales revenue. The conversation then turns to, “What impact on sales would more and better qualified leads have? What if your close ratio was higher and your sales cycle shorter?”

One final point on revenue growth. Be prepared for the prospect to still push back and discount the impact of revenue gains. Lots of things need to happen to achieve revenue growth and typically the company is already engaged in many activities designed to increase revenue. It is OK to show the total potential revenue increase, but you need to allow the prospect to discount the net result to ensure that both they and the project approvers will believe it. Since revenue gains will usually have the largest impact of any type of benefit, even discounting it by 50% or more will still likely result in significant value.

It is fine to show top line growth using case studies from your other customers as part of the discussion, but I believe you’ll get better traction if you tie those proof points to the process changes that drove that revenue growth (shortened sales cycles, better leads, etc.). That is the best way to justify the cost of your solution and show the customer the level of value your offering can deliver.

Does your offering enable revenue gains for your customers? If so, how have you been able to convince prospects of the revenue gains? 

[Image: Flickr / Spike55151]

Why Value Based Selling Is So Successful

by Jim Heffernan

light bulbs

Value-based sales is a popular term that gets thrown around an awful lot these days. Many major companies claim to provide this service to their customers while citing different reasons for why their particular organization has the best value. From tech support to delivery speed, from warranty policies to company reputability, there are many factors that a company will claim makes them a “value-based seller.” 

What is Value Selling? 

If you go online and search for the keywords “value based sales” or “value selling,” you will be practically bombarded with articles about how the process works or what value selling really means. For example, Sequeira Consulting’s website defines value based selling as an approach “built on quantifying the impact the service makes on the customer’s financial performance,” a definition mostly suited for business to business (B2B) transactions because it points out the mutual benefits to both the service provider and the client in financial terms. In an article for SalesResources.com, Dave Kahle defined the “value” in value selling as something “defined by the customer, not the supplier,” a definition more in line with the traditional “the customer is always right” mode of thought prevalent in the customer service industry.

In truth, value selling is all of the above and more. In both of the above examples, the emphasis is on what would best serve the needs or wants of the customer, not the price of the service given. Even though a B2B transaction is usually negotiated with both sides looking squarely at the return on investment (ROI), that ROI consideration is only a part of the value being sold to the customer. When a salesperson uses value selling techniques to identify the needs of the customer and highlight how those needs are met by the product being sold, the customer becomes more invested in acquiring that product. When a customer is invested in acquiring a product, that customer is much less likely to allow the transaction negotiation to become stuck or fall through. This applies equally to both B2B and private consumer transactions.

How to Make Value-Based Sales Work for You 

By refocusing the discussion between buyer and seller from price to value, the seller can mitigate the risk of lengthy, time-consuming debates and haggling sessions over the cost of the product and keep the buyer from attempting to discount the product to a price which makes it virtually unprofitable.

Using a simple example, a new start-up business is moving into an office and needs to buy light bulbs in bulk because the office was supplied with defective bulbs that burned out within a month. The sales representative of the bulk light bulb company offers the customer high-quality bulbs that are both long-lasting and energy efficient, but it would cost $500 for enough bulbs to fill the office and the buyer only budgeted for $350. If the seller were to drop the price, the light bulb company would barely make enough profit to justify the sale. Cheaper bulbs would burn out too quickly, and the buyer is now wary of “bargain” brand pricing because of the defective product from earlier.

Here is where value-based sales techniques can really shine. The sales rep, knowing that the customer wants the better-quality bulb, can establish the long-term value to the buyer. Even though the initial price of the bulbs is just a little above the customer’s assumed budget the seller can stress the long-term benefits of the high-efficiency bulbs. In this instance, the sales rep would inform the customer about the value of not having to replace the bulbs for up to four times as long as the standard product, thus curtailing the need to continuously budget $350 per year just for new lights, or even mention that the high-efficiency bulbs use half the kilowatt hours of their lower-price counterparts, reducing monthly energy costs. By helping the customer understand the measurable value the product will deliver to his business, the customer will feel less compelled to haggle.

The reason value-based selling works is because it takes into account the needs and wants of the customer to create an approach that best influences the customer’s purchase decision. If a sales rep can create in the customer the impression that the product being sold is indispensable to his or her needs and that the value of the transaction more than justifies the price, that is value-based selling.

Value-based selling engages customers and creates a buying situation where the customer is less focused on price and more anxious to start realizing the benefits This allows sellers to successfully close transactions more often with better profit margins and saves time that can then be dedicated to more customers.

Identifying and addressing a customer’s needs with a product and guiding the customer into recognizing the value of that product is the way in which such involvement builds a healthy, stable relationship between buyer and seller. Buyers who simply receive a product that is cheap without being made aware of the value that they are receiving from the seller will quickly switch to another supplier if they find a cheaper source of the product. Why? Because, without the sense of investment in a product that is supplied by a value-based sales approach, the customer is only focused on the cost of obtaining the product and not the value of what they are getting.

However, when a customer has been invested in the seller’s product through a discussion of the value that is being given, they will consider more than just the price of a competitor product before making a decision to abandon their current supplier. If the seller can keep the customer convinced that their product is a better value overall, they are able to keep the customer’s business without having to sacrifice profits by dropping the cost of the product.

In Conclusion 

Ultimately, value-based selling is successful because it provides customers with the understanding that they are making worthwhile investments of their money. Good value-based sales techniques are tailored to the needs of the customer, making them understand why they are buying a quality product for the asking price. Value selling resolves potential customer issues with pricing and prevents the stalling of important deals and the wasting of precious employee man-hours. The rewards for masterfully exploiting value-based sales techniques are well worth the investment for any company with a product to value.

Jim Heffernan

Jim Heffernan is Sales Performance Consultant at Miller Heiman and President of Insights53. This post appeared originally on the Insights53 blog and is published here with permission. 

 

[Image via Flickr / kennymatic]