When selling your product or service directly to a single customer it’s likely you’ll find yourself having to negotiate on price.
This is usually the final step in the selling part of the sales process, and the one most likely to determine your profit from the sale.
Often, during a negotiation, the customer, and our emotions, can lead salespeople (especially those new in business, or new to selling) to make up a price on the spot, in order to close the sale.
This is likely to result in a missed opportunity to maximise profit.
To avoid it, you should be pre-prepared on what prices, and discounts, you are going to offer, before entering into the negotiation.
A simple framework to use is:
This is the absolute maximum you can charge; your “dream” price to sell at.
This is the average price you’d be happy to sell at, that would still give you a healthy profit and grow your business
This is the absolute lowest, emergency price you’d be prepared to take, in order to close this specific sale only
These prices are determined on your own business and industry needs, but may be influenced by:
- what you sell
- your profit margin
- your current business conditions
- current market conditions in your industry
- the long-term value of that specific customer relationship
Once you’ve worked out these three price tiers, when you enter into negotiations you’ll know exactly where to focus on pricing.
Of course, this doesn’t mean that you only have three prices to offer; start at your topline and slowly move down to your middleline, don’t just sink to it like a stone!
You should be as tough as the negotiation allows to stay above your middleline.
However, if that’s not working and you have to lower price, then your emergency is your bottomline.
The crucial thing is to not go lower than your bottomline, no matter how tempting it might be in the heat of the negotiation.
If the customer won’t at least meet you at your bottomline then you must walk away from the deal otherwise you risk doing more harm to your business than good.
Though, often this is easier said than done 🙂
N.B. You can also use this framework if you are the buyer, just reverse it; your topline is the lowest you could ever hope to pay, and your bottomline is the most you’d ever pay.
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