Leadership Tip For An Uncertain Economy: Raise Your Prices—Without Raising Your Prices

Article originally appeared on the Forbes Business Development Council - https://www.forbes.com/sites/forbesbusinessdevelopmentcouncil/2022/11/23/leadership-tip-for-an-uncertain-economy-raise-your-prices-without-raising-your-prices/?sh=394bc1e99737

Our partner Barry Trailer, the cofounder of Sales Mastery, made a powerful presentation as a guest speaker at this year’s?virtual summit?event. During this talk, he issues an intriguing challenge to leaders who face the daunting task of setting the organization’s strategy during times of deep economic uncertainty—which, as you may have noticed, can well describe the times in which we are living.

Barry’s advice: “Raise your prices—without raising your prices.”

How do you do that, exactly? Read on.

Our philosophy at Sandler has always been that, as sales professionals, we must start by accepting that discounts are not the best way to win business. But they?definitely?are not the way we want to resort to winning in an economic downturn.

Barry agrees, by the way. But as he points out in this talk, too many decision makers, facing down times of increased cost control or economic uncertainty, have the unfortunate knee-jerk response of freezing hiring or cutting travel and training expenses.

As understandable as such responses may be, they fail to incorporate the inescapable reality that, as leaders, “we cannot expense-control our way out of a recession.” As noted in this study from Sales Mastery, a 5% reduction in expenses typically delivers only a 3% to 10% improvement in the bottom line. You and your organization can do better—a lot better—by leading a cultural and systemic change within the sales team around the issue of discounting.

Make no mistake: This?is?a cultural challenge. Most of the time, when salespeople discount, they tell themselves that discounting is the only way to get the deal.

Spoiler alert: It’s?not?the only way to get the deal. It’s a downbound spiral: Companies cut their staffs, then tell those who remain, “Get the deal, no matter what.”

Directly or indirectly, salespeople are rewarded for translating “no matter what” as “discount when you believe that’s what it takes to get the business.” Talk about a race to the bottom!

As?this video from Sales Mastery?points out, selling your organization’s value and slashing your list prices are really opposite ends of the spectrum. You can choose one or the other. You can’t do both. And to choose discounting during a time of global volatility is a poor strategic decision. Plugging the discounting holes in your revenue bucket is a far more effective way to grow your business, especially in an economic downturn.

Be honest. How much sales revenue would you say you are currently losing because of knee-jerk discounting on the part of your sales team? Let’s say it’s between 5% and 10%—a conservative estimate, but one that will memorably prove this point.

Suppose you’re on the low end of that spectrum. You’re now losing 5% of the revenue you could be taking in, all because your sales team is instinctively discounting instead of selling value. And let’s face it: This is what many, many sales teams do during uncertain economic times.

So, what happens if you plug that hole in your bucket? Your organization’s profitability increases by 20%.

Now, suppose you’re on the high end. Suppose your sales team is giving away 10% or more in revenue by routinely selling off the list price. What happens if you plug?that?hole?

Fix that problem, and your profitability increases by 50%.

Now that you know what the stakes are, you may be a little more interested in changing the culture and the process: by making price discounting the rare exception rather than the daily (or hourly) rule. That’s?how you raise prices without raising prices.

You may be wondering: “Okay—but how do we make that kind of change?”

One powerful solution: Train and reinforce your team effectively using the?Sandler Negotiation Matrix, a tool created to help teams prepare for, and respond effectively to, requests for concessions from the other side.

The idea is simple: Ahead of time, you write a private memo to yourself that reminds you of the list of concessions you are willing to make—the concessions that have nothing to do with lowering your prices. At the same time, you also put down in writing what the parallel concessions from the other side might look like.

Filling in the blanks on the Negotiation Matrix before any “horse trading” begins can help solidify in the salesperson’s mind the?non-monetary?concessions they should be prepared to make to move the discussion forward.

This can also help the salesperson establish the comparable dollar values of the concessions they?want, which they can discuss with the other side when the opportunity arises.

This is a powerful solution to helping you clarify, and rank in importance, the concessions the other side should be making, as well as their approximate value. Of course, you should not grant concessions from your side without a parallel concession offer from your negotiating counterpart.

In?this sample, you’ll notice the option of discounting the base quoted price is?not?listed as one of the five possible concession options. This is because our goal is always to change the product and service mix rather than allowing for discounts on the quoted price.

This simple but powerful planning tool addresses one of the biggest problems we see among sales teams who don’t yet have a negotiating process in place: a lack of preparation. Make sure your team is prepared!

Make this tool part of your sales leadership vocabulary. Share it. Evangelize it. Train it. Celebrate it each time it works—which is the vast majority of the time!