Editor’s Note: This piece was originally published on LinkedIn. You can find it here.
It’s a fair question. “It depends” is not a fair answer.
Interested in seeing a sales professional stumble and squirm for a bit? Ask them how much what they’re selling costs.
Anyone outside of the selling profession can be forgiven for thinking that talking about price would be one of the first things we learn as sales professionals. After all, the concept of pricing and cost is one of the most central and fundamental components of a business transaction. Trading money for something is the quintessential representation of a value exchange.
Those of us who make our living selling know that it’s not that easy.
We’re taught how to dodge the question by well-meaning sales leaders.
No one really teaches sales professionals how to handle the question. What we’re taught is how to dodge the question by well-meaning sales leaders who tell us that we should defer the question until later in the sales cycle. That we should be selling on value. That we’re to understand the budget of the buyer first. That we’re not supposed to show our cards too early.
Those positions aren’t inherently wrong. They just don’t answer the question. And it’s a fair question. Prospective customers have a right to ask their salesperson what a solution costs, and we have a responsibility to give them a clear and direct answer.
For anything that’s not a fixed good with a readily quoted unit cost (professional services, enterprise software, consulting, etc.) the pricing tends to be variable and that’s part of what makes it difficult to provide an answer early in the sales cycle.
Most customers haven’t been trained in how to evaluate and purchase something, and they may only do it a few times in their careers. As professional sellers, who do this all day, every day, it’s our job to help them frame their thinking around “price” or “cost” in a manner that will allow them to make the most informed decision.
What something costs is one factor among many in a purchase consideration. For less sophisticated buyers, however, price is the most concrete factor and the most logical to which they can go, which is why they ask about pricing so quickly. Even more sophisticated buyers can press the price question early. It’s easier.
We know that early in the cycle we don’t have enough information to provide an accurate price – the prospect isn’t clear on their requirements, there’s more for everyone to learn, etc. This is why “it depends…” are the two words that most commonly tumble out of a salesperson’s mouth when they’re asked about price. We then proceed to explain, using far too many words, why we can’t actually give them a price. But that doesn’t answer the question and it frustrates the buyer.
Provide a framework with your response.
Here’s how to answer the question.
Provide a framework first – this gives your prospective customer a sense of what goes into your pricing and why you structure it the way that you do. Don’t just give a number. Explain to them the components of your pricing. What they’re asking for (the price) isn’t what they actually want to hear (which is how you’ll help them determine value to their organization.) The framework gives structure to the how you’ll help them determine that value.
For example, if you sell enterprise SaaS software, this is sample framework:
There are three components to our pricing model – annual subscription, utilization, and professional services.
- The annual software subscription is the cost for accessing the core platform that we’ve had in market for years and continue to enhance and improve.
- The utilization is a variable component based upon how much you plan on using, and this is different for every customer. (Note: ideally this utilization is based on whatever the value metric is – users, storage, messaging volume, API calls, etc.)
- Professional services costs are based upon real human beings doing work to help implement the software and train you on its use and are scoped with you as part of the project planning.
So that’s it – we price on those three things: annual subscription, utilization, and professional services.
Our average selling price when you combine all three of those components is about $300,000. Lots of things impact that, which is why we always setup a discovery and strategy session with your team to help map out a path and plan. We’d like to do that once we both have a sense that there’s a good fit between what you need and what we do. That session will allow us to provide you with a thoughtful and accurate proposal, which will be based upon the value you’ll receive as a business across those three components.
Then stop talking. Please. Stop. Talking.
Let them process what you’ve just told them.
What have we accomplished? We’ve given a structure to our pricing model that the customer can consider. We’ve given them buckets into which they can place their assumptions and ideas to organize their thinking. The human brain likes to organize into groups (for example, grouping everything our eyes see into semantic neighborhoods.) This framework gives the prospect’s brain what it wants.
We’ve structured what we deliver into three discrete functions instead of one monolithic block, which allows us the opportunity to articulate not just a general value statement, but specific instances of value in each of those areas.
We’ve also established some qualification criteria – for both us and the prospect. If they hem and haw all over the $300,000 number, then we know something is off – either there’s total misalignment, we’re talking to the wrong level of buyer, something. But we now know that we have work to do, and we know that early in the cycle.
It also helps the buyer understand where this kind of purchase fits into their budgeting cycle, levels of approvals that will be required, etc. It establishes a baseline so we and the prospect can work together to craft an engagement plan to guide the evaluation.
It doesn’t really matter what you’re selling or what the pricing structure is – always provide a clear and consistent framework.
There are infinite variations and ‘what if’s’ that come up with the question of positioning price, but I contend that it doesn’t really matter what you’re selling or what the pricing structure is – the method of providing a clear and consistent framework allows you to help educate the buyer with how to think about your solution and it puts your initial, general price figure in some context. Use a framework, pick the right three things to be in the framework, and then answer the question by introducing the framework.
Without context a number is just a number. Maybe too high, occasionally too low, never just right – so spend your energy on articulating the framework, not equivocating on a number.
A structured response should roll off the tongue of every sales professional in your organization.
Practice this with your team and colleagues. A structured response should roll off the tongue of every sales professional in your organization. You and your teams should feel empowered to answer this perfectly appropriate question early in the cycle – because it will be asked early in the cycle – and to answer with clarity and conviction. Doing so is a signal of professional competence that your prospects will appreciate it and it will be a point of differentiation from your competitors.
This post is the first in a series of three on the subject of discussing price and cost in selling situations. Click here to read Part 2: “When and How to Present a Proposal – Six Rules.”