Q&A: Is Negotiation Always Reasonable for Salespeople?
Question: I saw your LinkedIn post about not having questions to answer. So here’s one (a bit more skewed towards an enterprise sales opportunity): One key skill for the sales team is to speak to value. Eventually, if the sales conversation is progressing, you get to the stage of trying to close a deal, and at this point negotiation comes into play. Is your position that a high-quality value-conversation should make the back-and-forth of negotiation go away? Or if there is always some irreducible level of negotiation, is this a skill that you expect salespeople to have? Should there instead be negotiation experts that come in at this point?
Answer: B2B Enterprise sales is a great place for pricing people because that’s where the price is actually realized. The amount on the contract is what matters way more than the list price.
Your description of the sales situation is hopefully accurate in that our salespeople had value conversations with the buyer and together they determined the amount of economic value your product could provide to them. This estimated economic value is typically much much larger than your price. Sales does a fantastic job of convincing the committee, users, evaluators and especially the economic buyer – that this is the right solution. Everybody is ready to buy from you, then the salesperson gets passed over to procurement.
The Starting Point of Negotiations
Procurement is where the negotiations begin. Sales should never lower the price before this point. If they do, they are only lowering the starting point. Procurement will still want their discount. The back and forth will never go away. Procurement has a job and they will do their absolute best to get a discount.
Here’s the key point though: If sales has done a fabulous job with the value conversation, the committee is convinced you understand their problems and can solve them.
Odds are very good that your competitors did not have this value conversation. This means your salespeople should be confident they will win this deal. You can probably win even if you don’t discount. That’s a powerful place to be.
You may still want to offer a small discount after a couple rounds of negotiation to make the deal close faster, but know that you probably don’t have to. The salesperson should be reiterating the amount of economic value the buyer will receive and our policy is to not discount.
Should Salespeople Be the Ones to Negotiate?
You questioned who should do this. In most B2B companies, salespeople do the negotiation. That’s where it fits best because sales has the first hand knowledge to talk about economic value.
I prefer that you send your salespeople to negotiation training, teach them the procurement tricks to look out for, and make sure they confidently believe in your value. Then they should be able to close deals at higher prices.
To be sure, salespeople have an incentive to discount, especially if their commission is based on revenue. A good commission plan combined with excellent training will work wonders.
Hope that helps.
Mark is a pricing expert who helps companies understand value, how to create it, communicate it and capture it. He has a PhD from U.C. Berkeley and an MBA from Santa Clara University, plus 25+ years pricing experience. As an educator, speaker and coach, Mark applies innovative, value-based pricing strategies to guide growth and increase profits for large and small companies.