It is extremely rare to find a market in which homebuilders don’t make some attempt to persuade salespeople to lower the prices. It is equally difficult to find markets where the salespeople are able to consistently hold their prices firm. The solution is often as simple as education. You certainly know your customers and your market. You know which customers are aggressive buyers and in their search for lower prices will not accept no for an answer. The purpose of this article is to give outside salespeople some negotiating rules to level the playing field.
Have resolve in your voice when you quote prices. The words to use when quoting prices are: “The price is .” Don’t be blunt or abrasive when you quote, but avoid words that make you sound insecure about your prices.
Don’t apologize for your prices. Your prices are a reflection of the market and a product of the market research your company has done. The more evidence you can uncover to support the competitiveness of your prices, the higher the odds you will be able justify the prices you quote.
If it is your company’s policy to allow salespeople to deviate from established pricing, and when they are doing business with a customer who simply refuses to pay the asking price, consider arming your salespeople with three prices: A) the initial price; B) the target price; and C) the walk-away price.
If salespeople quote their target price and the customer refuses to pay it, then they are forced to lower the price to a level that will have an adverse effect on your targeted gross margin. However, if you quote slightly inflated prices, you are in a position to lower your prices to the target pricing level without allowing your gross margin to suffer.
The third price—your walk-away price—is the price below which you have decided in advance not to go. Without a walk-away price, salespeople sometimes have a difficult time knowing where the bottom is.
Quoting a price: It is wise to first establish the value of your product or service before you quote a price. This is especially true with prospects. Salespeople who quote prematurely are inviting a battle over price.
Splitting the difference: It is not uncommon for salespeople and/or customers to suggest splitting the difference as a way to reach agreement. Never be the first to offer this option; be patient and wait for the customer to make this offer first.
Concessions: In advance of the final negotiation, salespeople should make a list of relatively small concessions that are not especially important to them, but appear to be of a much greater value to the customer. Be prepared to either offer these concessions to the customer or give into them when a customer offers them to you. Sometimes this tactic is called giving a negotiating opponent the “sleeves out of your vest.”
The salesperson should quantify the value of each concession the customer asks for so it’s easier to compare apples for apples in dollars and cents.
Do your homework: Massive amounts of homework give salespeople a great deal more confidence than they would otherwise have. Have several alternative options in mind that may allow customers to achieve their goals without your having to cave in on price.
Using the IF word: Rather than making a firm offer in a negotiation, consider using the IF word. Example: “If I could persuade my company to reduce our price on framing lumber by $200, could you see your way clear to give us the windows on this job?” In other words, if I will do this for you, will you do that for me?
Protect your gross margin by doing your homework and practicing the basics of effective negotiating.
About the Author
Author Bill Lee has nearly 40 years of experience in the construction supply industry. A seminar leader and consultant, he is the author of two books: Gross Margin and 30 Ways Managers Shoot Themselves in the Foot. You can reach Bill at BLee3Paris@aol.com, www.BillLeeOnLine.com, or 800.277.7888.Follow on Twitter More Content by Bill Lee