In the last two weeks, I described why you shouldn’t and why you should give the authority to discount prices to salespeople. This week, I’ll describe a reasonable compromise.
I’ve seen companies give salespeople complete pricing authority, which I’m confident was suboptimal. I’ve seen companies give no discount authority to the field, which slows down the sales cycle and causes extra work in headquarters.
The obvious compromise is to give salespeople limited discount authority, say some % off of the list price. Any price lower than that gets escalated to headquarters. The key problem with this is whatever level of discount authority you give to sales, they will use it most of the time. Below are two tactics you may be able to use to minimize this discounting behavior.
First, create a smarter sales compensation plan. If you pay commission based on margin instead of revenue, salespeople have much more incentive to hold prices high. Of course, we often don’t want to share our costs with salespeople, so instead you could create a floor price and pay commission on a percentage of price above that. Alternatively, you could create a floor, target, and list price. Pay a high percentage on any deal sold at list, a normal percentage for deals sold above target, and a low percentage of any deal sold below target.
Second, create a little friction for salespeople to use their full discount authority level. For example, if you give salespeople the authority to discount to 10%, most of their deals will come in at 10% below list. But, if you add the caveat that any discount below 9% requires an email explanation to their boss, you will see many discounts shift to 9%. That 1% isn’t worth the extra effort to sales, but it is pure profit to your company.
If you want even more of this type of discussion, please read my latest book, Selling Value: How to Win More Deals at Higher Prices. And if you want help to get your salespeople winning at higher prices, please reach out to me at [email protected].
Now, go make an Impact!
