You can’t have confidence in your price unless you have confidence in the value you deliver to your customer’s business. Your products and services provide financial value to your customers by increasing their revenue, reducing their costs, or helping them to mitigate risks. It’s really that simple. How do you build that value understanding? By going out and talking to your customers.
I can hear your objections. Our clients will say, “our customers are never going to give us detailed financial and business information.” In our experience, nothing could be further from the truth. Customers really appreciate sellers who take the time to understand their business, that ask interesting questions, and then sit back and really listen to what the customer has to say.
There are 5 steps to building this value understanding.
Step 1: Do your homework. Talk to your internal experts in sales, product management, marketing, or marketing research, to understand how your customers use your product today. Try to probe for the business benefit that your customers get from choosing and using your products.
Step 2: Connect the dots. Start with your differentiators. Link your products and services to the business need they address. Let’s say you offer expedited delivery from raw materials to your manufacturing customers. That allows them to reduce production costs by not having to carry so much inventory on site. Next, try to understand how your customers can observe and measure your impact. Let’s say by tracking improved efficiency, or reduce staff time required, or maybe faster time to market with a new product or a marketing campaign. Finally—and probably most importantly—attach a dollar sign. That means quantifying the incremental profit dollars that drop to your customer’s bottom line because they’ve chosen your product over the alternative's.
Step 3: Talk with customers. Let’s say you’ve built five or six of these value equations. Now you’re ready to go out and talk to customers. Pick some accounts and begin with open-ended, high-level questions that try to detail the challenges and opportunities they’re facing. Try to validate your assumptions about how your products and services can address these needs. Then probe for financial benefits or business improvements that their customers will get. Most importantly, stay curious. Always look for new ways that your customers might use your product or for other stakeholders that might benefit from your solutions.
Step 4: Build the financial model. After you’ve talked to a few customers, you’ll begin to see patterns. People will begin to repeat the same value use cases and the same benefits. Now it’s time to go back to the office and build a financial model: adding up all these value equations in a spreadsheet. Use this value model to build a range of options from high- to low- value and prices that capture a fair share of that value.
Step 5: Create sales tools. These tools will enable your sellers to capture the prices you deserve. Your sellers can use this financial model to qualify a prospect to be sure your solution really fits their business. They can also be used to roughly calculate the financial value they should see from choosing your solution. The most fun part about it is that sellers can use that same value understanding to take back control of negotiations.
Let’s say procurement says, “to win this deal, you need to give me a 20% discount." The savvy seller will say, “No problem. I can meet your budget requirements; I just need to drop you down to this lower tier offering.”
That’s pricing with confidence.