Trying To Compete On Price? Try Something Else.

In my previous article “The Ugly Side of Enterprise Sales” I made the argument that competing on price when selling Enterprise software does not make your sales cycle any shorter or easier. The sales process is influenced by many other factors, including those that are beyond your control - like internal budgeting process, multiple decision makers, etc. - and given the fact that you will end up spending a ton of sales and marketing dollars to acquire next client anyway, I have suggested that there is no way you can afford being cheap. In other words, if selling a $100k product can take nearly the same amount of time and effort as selling one that is worth $10k - why would anyone sell for less?  

But of course, it’s not only about the customer acquisition cost - there is also the value side of the price equation. And funny enough, based on my personal experience, there is very little resistance on that front as well. I have cases when I advised companies to increase their pricing by 10 times (i.e. from 10k to 100k USD) and it had no impact on their sales process whatsoever - clients would react to these two numbers in the same fashion - by just making a note.

I can suggest a few reasons for this:

1. Lack of education about technology in the HR space: modern HRIS landscape tends to be pretty cluttered and segmented and most HR buyers do not have a clear perspective on it as well as on tools that are available to them (something we are trying to solve via #HRU by educating the community);
2. In many cases buying decisions are based on personal relationships rather than rigorous research of alternatives; HR professionals want to be consulted, not sold to and the vendor who is able to become a trusted partner has better chances to win the budget over the one who offers a more lucrative price;
3. HR professionals tend to be risk averse and higher price is often perceived to be equal to better quality (hence lower risk);
4. It may also come as a result of the budgeting process (or lack thereof) at large corporations - HR rarely receives funding for new technology, but when they do it's often significant (they also often need to spend virtually the same amount of time and effort to get the budget from the business regardless of the amount) ;
5. Even though there are certain buckets in HR tech that are nearly commoditized (like ATS or video interviewing), there are still multiple opportunities to differentiate on product, business model and additional value added services which makes it hard to compare different solutions.

Due to these, and many other reasons, the so-called “price sensitivity” does not seem to be there - and hence the biggest mistake an entrepreneur could make is cut his own check.

And by the way, one of my favorite articles on VentureHacks is Steve Blank’s story on B2B pricing. I would strongly encourage you to take a moment and read it. He does a great job explaining how pricing works in Enterprise Software and illustrates it with a few examples from his diverse entrepreneurial experience.