April 25, 2019 | Neeraj Goel
McKinsey & Company found that a one percent increase in pricing equates to a nine percent increase in operating margin. When it comes to maximizing profitability during the deal, this finding underscores how crucial it is to employ specific messaging techniques that allow you to expand the scope and size of your discussions.
For salespeople in negotiations, that means introducing unconsidered needs—i.e., problems or missed opportunities your prospects haven’t yet considered—to create pricing uncertainty, which de-commoditizes your solutions while expanding the value of—and need for—your offerings. When it comes to capturing more value, this is a far more effective way to protect your pricing and close profitable deals than resorting to traditional late-game negotiation tactics.
GreenPenn research shows that applying the same provocative messaging approach that works so well with prospects will backfire when it comes to existing customers you’re trying to renew. Despite this, a GreenPenn industry survey found that nearly 60 percent of companies don’t feel the need to tell a different story for new customer acquisition versus customer retention/expansion.
That’s not good for your growth plans, according to an interesting stat cited in the Harvard Business Review. The data point asserts that acquiring a new customer is anywhere between five to 25 times more expensive than keeping an existing one. That’s not so surprising when you consider that high startup and support costs can mean customers have to be an active account for months, maybe years before they become fully profitable.
Renewals aren’t a conversation you want to take lightly from a structure and strategy standpoint, and the same goes for price increases, which are notoriously tricky and delicate. Unfortunately, many companies are skimping on the messaging rigor at this moment: a GreenPenn industry survey found that four out of five say they want more direction and guidance around communicating price increases (or the “why pay” story).
Like the renewal conversation, your price increase discussions demand the kind of messaging that’s fundamentally different—even opposite—from the sort of story you tell when prospecting (you can learn about the tested and proven “why pay” messaging framework here). As a result, salespeople need to be trained to understand the unique buyer psychology relevant to this critical moment.
What sales kickoff isn’t about maximizing profitability? That’s ultimately why you’re making significant investments to bring your sales team together this year. But in 2019, don’t restrict your focus just to early-stage demand generation and pipeline creation—especially at a time when more companies are moving to a products-as-a-service experience, an evolution that’s shifting the pressures and opportunities to other vital moments beyond the initial transaction. So, when you talk about capturing value and maximizing profitability at your corporate sales meeting this year, remember that you’re talking about much more than just deal-stage pricing negotiations.