Originally published on Forbes.com
Sales effectiveness is one of the most important levers in building pricing power. If you perceive your offering as highly differentiated, and the market doesn’t pick it up the way you expected, you won’t be able to make progress toward long-term profitability. We’ve seen more than 24% of additional revenue become available when teams can grow in go-to-market capabilities like negotiation and value communication—but so many salespeople lack the tools to improve in those areas.
Sales teams often get penalized too harshly when revenue is low and receive too much credit when it’s high—but market forces play such a big part in those outcomes, and there is so much more to sales effectiveness than just hitting revenue and margin goals. How can you set your teams up to succeed?
Redefining the assessment
Revenue and margin don’t always tell the whole story. Think about a salesperson, Jenna, who runs a $40 million territory in the Northeast. Her peer John runs a $10 million territory in the Southwest. Who is the better salesperson? It depends.
The easiest way to assess this is the magnitude of the revenue number. But then companies start to consider margin—Jenna is at 20%, while John is at 18%. Still, it’s not always that straightforward. John’s portfolio may have a disproportionate amount of price buyers. Jenna may be more equipped to repackage offerings based on customer value. How do we set these people up to be better?
How do we know they aren’t leaving money on the table, that 24% of additional revenue, and that they’re effectively building the pricing power of their territory?
Think about another scenario where costs go up and corporate tells you as a salesperson to raise pricing. You raise it, and you lose volume. Your comp goes down. Did you have all the necessary tools to protect yourself there? Were you set up to communicate value properly and retain the business in other ways?
There is so much more to this than just revenue and margin. A sales effectiveness index (SEI) should consider and incorporate:
• Buyer types and portfolio mix
• Share of wallet
• Revenue
• Margin
• Sales activity
• Long-term customer value
We need to set sales teams up to implement what value-based pricing tells us. They often do not have what they need to execute on your offering’s true differentiation—if John is trying to build relationships with too many price buyers (trying to sell a Ferrari into a Toyota household), he’s set up to fail.
Understanding selling scenarios
Sellers cannot sell the same offering with the same message to all buyers. Different buying centers will value different features and outcomes, and sales teams need to have an intimate understanding of value in order to quantify and respond appropriately based on the needs and priorities of each buyer. In our research, we found that 88% of sellers fail to do this—and it’s directly correlated to the additional revenue potential we’ve identified without touching list price.
This process starts with being able to diagnose your buyer type and approach value conversations effectively through that lens:
1. Price Buyers: Salespeople need a way to remove value from offers to lower their price. You need a stripped-down version of your product or service to effectively meet these buyers’ needs in negotiations. In my experience, most sellers significantly overestimate the amount of true price buyers in their portfolio. True price buyers are rare.
• Focus on: Low-value options.
• Avoid: Selling high-value offerings at lower costs (discounting).
2. Relationship buyers: You need to understand how their business makes money in order to help them succeed in any way possible. This scenario needs to go beyond your products and services. How is the company succeeding? How are they failing? What is stopping them from truly growing? You need to give them the right amount of customer service time, product development and co-creation. They care about fairness, and you need to make sure your pricing is perceived as such.
• Focus on: Understanding their business.
• Avoid: Taking them for granted.
3. Value buyers: They want things quantified. They want to understand and feel the value of your products and services. Make sure sellers are empowered to offer different levels of value, including trials, demos or other ways that customers will realize value within their four walls. Offer design should be set up so that when value goes up, they pay more and when value goes down, they pay less. The value buyer must be able to decide how much value they receive from you.
• Focus on: Different levels of value.
• Avoid: Fixed offerings with no flexibility.
4. Poker players: This person is bluffing to get you to lower your price. Underneath the games, they are either a relationship buyer or a value buyer. You need to prepare all of the above so you can suss out what their true buyer type is.
• Focus on: Understanding what they value.
• Avoid: Lowering your price to appease them.
Across the board, salespeople need flexibility. They need to be able to price flexibly relative to value and buyer type—and quantify that value to ensure they’re building and protecting pricing power during negotiations.
Building long term pricing power
Sellers are usually incentivized and compensated to deliver in the short term. Create the relationship, close the deal, get the sale or keep the customer at all costs. We’re wired this way, and it works to a certain degree.
But value-based capabilities are a critical lever for building the long-term pricing power of an organization. Sellers need to have the tools to co-create and meet buyers where they need value the most, including understanding when to hold the line on price and when to walk away.
Remember that pricing power is built, not bought. The more authority and support a sales team has to quantify and communicate value to grow their territory effectively, the better they’ll be able to build true value for the markets you serve.
