Signs ups are happening now.
(https://continuingstudies.stanford.edu/courses/course.php?cid=20131_BUS+213)
Posts
Time to Move On – The Reason Relationships End
2 weeks ago
Showing posts with label Sales. Show all posts
Showing posts with label Sales. Show all posts
Tuesday, August 20, 2013
Fourth Time Shameless Pitch: BUS213 is Now a Featured Course!
Signs ups are happening now.
(https://continuingstudies.stanford.edu/courses/course.php?cid=20131_BUS+213)
Wednesday, August 22, 2012
Third Time Shameless Pitch: BUS213 is On Again!
Signs ups are happening now.
Monday, April 25, 2011
How to Set Prices: Customer Value Analysis
5th and final post in a series on How to Set Pricing
I first learned about value pricing as a product manager at Metcal. At that time the company was a startup making high end hand soldering equipment for PCB assembly houses. To give you an idea of how high end, at that time a Metcal soldering station sold for 5x that of competitive units, and the consumable tips were 10-15x that of the competition in what most would call a commodity market. Yet, in eight years, the company went from being the #8 to #2 market share player.
Now while there were many reasons for the company's success - superior technology, ergonomically friendly design, robust product quality, etc. - the killer app in the company's sales arsenal was a customer value analysis created by one of the sales managers. This simple spreadsheet model translated the product's feature/benefits into a quantified customer value proposition.
When distilled to the basics, B2B customers buy products and services for three ultimate value objectives:
The main idea behind value pricing is that if your offering creates value, you price such that you and the customer share it. Normally, this is not 50/50 but weighted in the favor of the customer; the more value the customer captures, the stronger the value proposition.
Value pricing is widely practiced in B2B markets, especially where relationships are complex and long term. Examples include logistics outsourcing where the supplier is paid on the basis of procurement costs reduced; SaaS vendors often price their subscription services to capture 10-30% of value created for customers over a three year time horizon vs. using a traditional enterprise software solution.
To create a value analysis requires a deep understanding of how your offering impacts a customer's business economics. Gaining this insight takes time. For a startup to gain this insight, it typically must have access to a someone with extensive, specific domain expertise, one who understands the customer's business model well enough to know where the lever points are that have the greatest potential to affect profitability and growth.
Creating a Value Analysis
In order to create a value analysis, you need to know the following well enough to code it into a spreadsheet:
Method 8: Share of Value Pricing
In this method, a "typical" customer use case is created using the value analysis. Pricing is then set at 10-30% of the value, adjusted as needed for competitive market conditions. This method is practiced by many SaaS companies relative to traditional enterprise software offerings.
Method 9: Performance Pricing
Alternatively, for a specific customer, using the value analysis, compensation is based on a defined percentage of the value created (i.e. savings or revenue growth). This method is often practiced by industrial logistics suppliers, auto parts suppliers, electronic contract manufacturers., and cost-control consultants. Think of it as the corporate equivalent of a commission plan. Because payment is dependent on performance, using this method requires you to have a good handle not only on the customer's economics, but your own.
Summary of Pricing Methods
To summarize the nine different pricing methods discussed, they are:
I first learned about value pricing as a product manager at Metcal. At that time the company was a startup making high end hand soldering equipment for PCB assembly houses. To give you an idea of how high end, at that time a Metcal soldering station sold for 5x that of competitive units, and the consumable tips were 10-15x that of the competition in what most would call a commodity market. Yet, in eight years, the company went from being the #8 to #2 market share player.
Now while there were many reasons for the company's success - superior technology, ergonomically friendly design, robust product quality, etc. - the killer app in the company's sales arsenal was a customer value analysis created by one of the sales managers. This simple spreadsheet model translated the product's feature/benefits into a quantified customer value proposition.
When distilled to the basics, B2B customers buy products and services for three ultimate value objectives:
- Reduce costs
- Increase revenues
- Reduce risks
- Superior solder joint quality (reduced defect costs and risk)
- Faster soldering time (reduced labor cost)
- Elimination of calibration (reduced labor cost)
- Faster operator training time (reduced labor cost)
The main idea behind value pricing is that if your offering creates value, you price such that you and the customer share it. Normally, this is not 50/50 but weighted in the favor of the customer; the more value the customer captures, the stronger the value proposition.
Value pricing is widely practiced in B2B markets, especially where relationships are complex and long term. Examples include logistics outsourcing where the supplier is paid on the basis of procurement costs reduced; SaaS vendors often price their subscription services to capture 10-30% of value created for customers over a three year time horizon vs. using a traditional enterprise software solution.
To create a value analysis requires a deep understanding of how your offering impacts a customer's business economics. Gaining this insight takes time. For a startup to gain this insight, it typically must have access to a someone with extensive, specific domain expertise, one who understands the customer's business model well enough to know where the lever points are that have the greatest potential to affect profitability and growth.
Creating a Value Analysis
In order to create a value analysis, you need to know the following well enough to code it into a spreadsheet:
- What is the main value proposition you are offering to your target customer? Lower costs, higher revenues, lower risk? For Metcal it was mainly lowering the per unit cost of production.
- How does this tie into the customer's value calculation? For Metcal, this had a direct impact on the direct labor line in cost of goods sold on a P&L.
- What are the factors used by the customer to assess value? For Metcal, production rate, labor cost, defect rate, calibration and setup time were input factors in assessing value.
- What factors are not used by the customer to assess value and should be? For Metcal, many customers neglected to factor in operator training time.
- What is the feature => benefit => value proposition chain for each of your offering's features? For example, Metcal's superior technology => x% defect rate reduction => y% less rework => z% lower cost.
- What is the relevant payback factor used by the customer? Is it payback time? IRR?
- What is the relevant payback time used by the customer?
Method 8: Share of Value Pricing
In this method, a "typical" customer use case is created using the value analysis. Pricing is then set at 10-30% of the value, adjusted as needed for competitive market conditions. This method is practiced by many SaaS companies relative to traditional enterprise software offerings.
Method 9: Performance Pricing
Alternatively, for a specific customer, using the value analysis, compensation is based on a defined percentage of the value created (i.e. savings or revenue growth). This method is often practiced by industrial logistics suppliers, auto parts suppliers, electronic contract manufacturers., and cost-control consultants. Think of it as the corporate equivalent of a commission plan. Because payment is dependent on performance, using this method requires you to have a good handle not only on the customer's economics, but your own.
Summary of Pricing Methods
To summarize the nine different pricing methods discussed, they are:
- Cost Plus Pricing
- Direct Market Competitive Pricing
- Competitive Substitute Pricing
- Target Customer Survey
- Price Bracketing
- Price/Feature Stripping
- Customer Set Pricing
- Share of Value Pricing
- Performance Pricing
Sunday, April 10, 2011
How to Set Prices: Value Pricing Methods
4th in a series on How to Set Pricing
Last post we discussed tangible pricing methods. We now turn to value pricing methods. Simply put, value pricing methods seek to establish a price based on some percentage of the value perceived by the customer. While this seems straight forward in theory, this can be difficult to establish in practice for the following reasons:
In order to determine what percentage of value you can capture in your pricing, you must first understand what your offering's value is to the customer. This means you must first understand who your customers are. Again, while this seems like a no brainer, I've found that for most startups, while they have strong beliefs about who their customers are and what value they are offering to them, they actually have NO CLUE. Beliefs unsupported by data means NO CLUE!
Does that sound harsh? See if you can answer the following question about your customer value:
There are a couple of methods that can be used to collect value data. But unlike the four tangible pricing methods discussed previously, value pricing methods require (1) talking directly with individual target customers (2) an attempt to close a sale and (3) involve the risk of alienating a target customer to get the data.
The reason for this is that the only form of validated value data is a sale or other binding purchase commitment. What people tell you they will pay in conversation is very different than when you ask them to sign a purchase order.
Each of the methods described below requires that you:
Start discussion with an initial set of target customers. Once you think you have a good understanding of the reasons the customer might buy and they have a good understanding of what you have to offer, to get an initial feel for value, ask two questions:
Method 6: Price/Feature Stripping
Armed with a new offering presentation from Method 5, ideally meet with a different set of target customers. (If you are in a small B2B market with a restricted set of target customers, you may need to go back to the first set). This time, once you think you have a good understanding of the reason the customer might buy and they have a good understanding of what you have to offer, try to close a sale at the 75% price number from Method 5. Depending on which reaction you get do the following:
At this point, go back to the first set of target customers and let them know that you've found some ways to work the cost issue both internally and by removal of certain features to get closer to the the previously discussed "no brainer" price. See if you can close the sale again, this time at the average counter-offer price from the second set of target customers. You will then get one of two reactions;
One alternate method for determining value is to let customers set their own price. Examples of this include self-published e-books where the author request that people pay what they think the item is worth and museums, which request visitor set donations in lieu of an admission fee. The most obvious risk of letting customers set prices is not being able to set prices adequate to cover costs, but depending on the nature of your offering this method may work for you. To be viable it helps to have:
Next post: Customer Value Analysis
Last post we discussed tangible pricing methods. We now turn to value pricing methods. Simply put, value pricing methods seek to establish a price based on some percentage of the value perceived by the customer. While this seems straight forward in theory, this can be difficult to establish in practice for the following reasons:
- One must understand what the customer perceives as value in your offering
- One must understand the customer's time frame over which value is calculated
- The full value may be in intangible areas that the customer may not be aware of
In order to determine what percentage of value you can capture in your pricing, you must first understand what your offering's value is to the customer. This means you must first understand who your customers are. Again, while this seems like a no brainer, I've found that for most startups, while they have strong beliefs about who their customers are and what value they are offering to them, they actually have NO CLUE. Beliefs unsupported by data means NO CLUE!
Does that sound harsh? See if you can answer the following question about your customer value:
- What is the demographic profile of your target customer? What hard evidence do you have to support this? Can you put this on paper?
- What are their acute pains in ranked order and what is your supporting data?
- How does your offering's features address each acute pain and what customer evidence do you have to prove this? (Not what hypothetical, logical reasoning you have that it should address this?)
- What competitive substitutes are your target customers using today to address their acute pain and how do you know this?
- What does your customer's life look like before they start using your offering? How is it different afterwards? What facts do you have to support this?
- Can you construct a mathematical model for value analysis that shows how different levels of acute pain reduction translate into customer value? (This will be the subject of the last post in this series.)
There are a couple of methods that can be used to collect value data. But unlike the four tangible pricing methods discussed previously, value pricing methods require (1) talking directly with individual target customers (2) an attempt to close a sale and (3) involve the risk of alienating a target customer to get the data.
The reason for this is that the only form of validated value data is a sale or other binding purchase commitment. What people tell you they will pay in conversation is very different than when you ask them to sign a purchase order.
Each of the methods described below requires that you:
- Know and have access to customers who fit your target profile
- Have a hypothesis about your offering value that you can quickly communicate to customers (see my post on "Focused Selling")
- Have hypotheses about how different features of your offering address target customer acute pain
Start discussion with an initial set of target customers. Once you think you have a good understanding of the reasons the customer might buy and they have a good understanding of what you have to offer, to get an initial feel for value, ask two questions:
- Below what price would this be a "no-brainer" purchase that you could commit to today?
- Above what price would there be no chance of them ever buying and why?
Method 6: Price/Feature Stripping
Armed with a new offering presentation from Method 5, ideally meet with a different set of target customers. (If you are in a small B2B market with a restricted set of target customers, you may need to go back to the first set). This time, once you think you have a good understanding of the reason the customer might buy and they have a good understanding of what you have to offer, try to close a sale at the 75% price number from Method 5. Depending on which reaction you get do the following:
- Customer Accepts: Congratulations, you've gotten a sale...but you haven't learned much. Raise the price by 20% before you talk to the next target customer.
- Customer Rejects: Understand why. Then get a counter-offer. Once you have it, talk about which features you can strip to get to the counter-offered price. As you have the feature stripping discussion, you should get a feel for the relative value of each feature.
At this point, go back to the first set of target customers and let them know that you've found some ways to work the cost issue both internally and by removal of certain features to get closer to the the previously discussed "no brainer" price. See if you can close the sale again, this time at the average counter-offer price from the second set of target customers. You will then get one of two reactions;
- Customer Accepts: Congratulations, you've gotten a sale and validated the feature/value hypotheses.
- Customer Rejects: Understand why. In many cases, the new objections won't be price based, but will be sales process based. Congratulations, you can now move forward to address the non-price related set of impediments to gaining market traction.
One alternate method for determining value is to let customers set their own price. Examples of this include self-published e-books where the author request that people pay what they think the item is worth and museums, which request visitor set donations in lieu of an admission fee. The most obvious risk of letting customers set prices is not being able to set prices adequate to cover costs, but depending on the nature of your offering this method may work for you. To be viable it helps to have:
- Large potential customer base where the volume of payers is likely to be large enough to offset the inevitable free riders.
- Target customer base has some social or peer pressure element to pay something - This works for many charitable organization and the museum example cited earlier.
- Low or no incremental cost to delivering additional offering vs. probability having more paying users - In the case of the museum whether they have 500 or 5000 visitors a day does not change their operating cost but greatly increases the likelihood of donations. For the e-book author, once the book is written, delivering additional copies across the web is pretty cheap.
Next post: Customer Value Analysis
Monday, May 3, 2010
Focused Selling
Part 3 of a 3 Part Series on Consultative Selling
Once you've completed the grueling process of understanding your value, you're ready to sell, right?
Maybe. What are you going to say and how are you going to say it?
Whatever it is, it needs to be brief and to the point; this means refining your value message down to a short elevator pitch. While in Silicon Valley, the elevator pitch is most associated with raising money from potential investors, it equally applies to raising money from customers (i.e. a sale).
To shortcut all the pointless debates between "elevator pitches", "unique selling propositions", and "value propositions," I define elevator pitch to be a brief series of sentences that describes (1) what value you provide (2) how you do it and (3) what sets you apart from the competition. By brief, I use a 60/60 rule: 60 words in 60 seconds or less. Simple, right?
Try it.
The two most common mistakes I see: too much product talk and too broad. Let's look at each in turn.
Product Talk: Who Cares?
Inevitably, the first time people try to craft an elevator pitch, they start by talking about their products, technology, features, and on and on and on.... What's wrong this? Shouldn't people first understand what we have so they can figure out how it might help them? NO.
Our minds don't work this way. The way people's minds work in a selling situation is that context must first be established with respect to their pain and problems. If this context is established, then they're ready to hear more. If not, they don't care what you have to say about your product. Think back to the last time you got trapped on a telesales call. If you're like me the conversation in your head went something like this:
Me: Oh, man. What does this person want?
Telesales: "Good evening sir, we're running a special on custom carpet cleaning...."
Me: Why on earth do I need this? The cleaners were just here two days ago.
Telesales: "...six rooms for only $29.95! We use the latest vapor-dry technology and we leave your house smelling...."
Me (interrupting): "Thanks but not interested."
Telesales: For a limited time only, we're also offering free window washing if you place your order....
Me (interrupting again): "Sorry, really not interested. Bye."
Now if my kids had just tracked mud across our living room carpet, this conversation might have had a different outcome. Why? Context.
But It Can Do Everything!
The other problem I see is that people have a hard time focusing the message, especially where the product is capable of doing multiple things. So they rattle off everything. After all, you don't want to miss mentioning something that might resonate with the potential customer! The problem with this is that you come off sounding mediocre in the classic "jack of all trades, master of none" fashion. I'm in the service business, and one thing I learned early is that when customers are buying, they want to hire the expert. After they hire, they want someone who can do it all. Get hired first, you can cross-sell after you're in the door.
So even if you can do it all, focus on the one or two most compelling value aspects of your product for your pitch. You can elaborate later.
The Purpose of an Elevator Pitch
It's important to remember that the point of an elevator pitch is not to close a sale. Rather it is to get the prospective buyer to invite you to tell them more. To do this, you need to frame your pitch in such a way as to help the customer connect their problem with your offering so that they start asking questions, invite you to explain more, or they take some action to contact you (if the pitch is not face-to-face like on a website or collateral). This means you need to tailor your pitch to your target customer. If you have more than one potential target customers, you will likely have more than one elevator pitch, one per target customer.
A Case Example (and shameless commercial pitch)
Here's the elevator pitch that we currently use for my company, Infrastructure Group, not as a shining example of a great pitch, but so that you can see what one looks like:
"Infrastructure Group provides business services to early stage startups that enable entrepreneur's to focus their time and resources on core product and business development. We handle the non-core stuff like accounting, HR, and legal and act as your expert, time-share G&A staff. We're all former startup people and approach things from an operating, not merely advisory, perspective."
59 words deliverable in 20 seconds. Value: entrepreneur time by offloading the paperwork stuff. Differentiator: we used to be in your shoes. If you check out our website, you'll see the same message carried throughout. You'll also notice that we offer a number of additional services that aren't mentioned as part of the pitch, in order to avoid defocusing the message. Do we get invited in every time? No, but our elevator pitch allows us and a prospective customer to quickly determine if there is a potential, mutually beneficial fit which is ultimately what sales is about.
Maybe. What are you going to say and how are you going to say it?
Whatever it is, it needs to be brief and to the point; this means refining your value message down to a short elevator pitch. While in Silicon Valley, the elevator pitch is most associated with raising money from potential investors, it equally applies to raising money from customers (i.e. a sale).
To shortcut all the pointless debates between "elevator pitches", "unique selling propositions", and "value propositions," I define elevator pitch to be a brief series of sentences that describes (1) what value you provide (2) how you do it and (3) what sets you apart from the competition. By brief, I use a 60/60 rule: 60 words in 60 seconds or less. Simple, right?
Try it.
The two most common mistakes I see: too much product talk and too broad. Let's look at each in turn.
Product Talk: Who Cares?
Inevitably, the first time people try to craft an elevator pitch, they start by talking about their products, technology, features, and on and on and on.... What's wrong this? Shouldn't people first understand what we have so they can figure out how it might help them? NO.
Our minds don't work this way. The way people's minds work in a selling situation is that context must first be established with respect to their pain and problems. If this context is established, then they're ready to hear more. If not, they don't care what you have to say about your product. Think back to the last time you got trapped on a telesales call. If you're like me the conversation in your head went something like this:
Me: Oh, man. What does this person want?
Telesales: "Good evening sir, we're running a special on custom carpet cleaning...."
Me: Why on earth do I need this? The cleaners were just here two days ago.
Telesales: "...six rooms for only $29.95! We use the latest vapor-dry technology and we leave your house smelling...."
Me (interrupting): "Thanks but not interested."
Telesales: For a limited time only, we're also offering free window washing if you place your order....
Me (interrupting again): "Sorry, really not interested. Bye."
Now if my kids had just tracked mud across our living room carpet, this conversation might have had a different outcome. Why? Context.
But It Can Do Everything!
The other problem I see is that people have a hard time focusing the message, especially where the product is capable of doing multiple things. So they rattle off everything. After all, you don't want to miss mentioning something that might resonate with the potential customer! The problem with this is that you come off sounding mediocre in the classic "jack of all trades, master of none" fashion. I'm in the service business, and one thing I learned early is that when customers are buying, they want to hire the expert. After they hire, they want someone who can do it all. Get hired first, you can cross-sell after you're in the door.
So even if you can do it all, focus on the one or two most compelling value aspects of your product for your pitch. You can elaborate later.
The Purpose of an Elevator Pitch
It's important to remember that the point of an elevator pitch is not to close a sale. Rather it is to get the prospective buyer to invite you to tell them more. To do this, you need to frame your pitch in such a way as to help the customer connect their problem with your offering so that they start asking questions, invite you to explain more, or they take some action to contact you (if the pitch is not face-to-face like on a website or collateral). This means you need to tailor your pitch to your target customer. If you have more than one potential target customers, you will likely have more than one elevator pitch, one per target customer.
A Case Example (and shameless commercial pitch)
Here's the elevator pitch that we currently use for my company, Infrastructure Group, not as a shining example of a great pitch, but so that you can see what one looks like:
"Infrastructure Group provides business services to early stage startups that enable entrepreneur's to focus their time and resources on core product and business development. We handle the non-core stuff like accounting, HR, and legal and act as your expert, time-share G&A staff. We're all former startup people and approach things from an operating, not merely advisory, perspective."
59 words deliverable in 20 seconds. Value: entrepreneur time by offloading the paperwork stuff. Differentiator: we used to be in your shoes. If you check out our website, you'll see the same message carried throughout. You'll also notice that we offer a number of additional services that aren't mentioned as part of the pitch, in order to avoid defocusing the message. Do we get invited in every time? No, but our elevator pitch allows us and a prospective customer to quickly determine if there is a potential, mutually beneficial fit which is ultimately what sales is about.
Monday, April 26, 2010
Confident Selling
Part 2 of a 3 Part Series on Consultative Selling
One of the sources of fear in selling comes from a lack of confidence in the value of the product or service* that you are providing. The cure for this is not psyching oneself up or two shots of tequila but rather understanding the value of what you have to offer to your customers (marketing term: product/market fit). So how does one go about doing this?
Step 1: Create a Target Customer Hypotheses - Who is your target customer? What are there needs and wants? How do they learn about your type of product? What is there ability to pay? What is their life like before they use your product? How is it different afterwards?
With respect to needs and wants, you are looking for three things: overt pain, latent pain, and wants (see example below). Solving overt pain has the highest value and is usually an easy sell. Latent pain requires one to elevate awareness in the customer's mind. Don't expect to get paid much satisfying a mere want.
Step 2: Create a Product Feature Hypotheses - How can you fulfill the customer's needs? What are the core features required vs. the nice-to-haves?
Step 3: Create a Value Proposition Hypotheses - What is the ranked priority of customer needs and which of my product features is the customer likely to value the most? The least? What other ways could the customer fulfill their needs (marketing term: competitive substitutes) and what is their price?
Step 4: Test the Concept - Identify some number of people ( the sample size will depend on what type of product you have) who fit the Target Customer Hypotheses and talk to them or find some other method of obtaining feedback. Are your hypotheses about the customer's needs etc. correct or do they require adjustment? Is the customer interested in your Product Feature Hypotheses or do they require adjustment?
Step 5: Iterate Until Validation - What is validation? The only legitimate form of validation is a monetary commitment either in the form of a purchase order, a contingent P.O., or a binding letter of commitment. Free does not count. Non-binding letters of commitment do not count. A beta testing commitment probably does not count unless the customer is having to commit significant dollars and people to executing the beta test. Only at validation do hypotheses convert to facts.
Those of you familiar with Steve Blank's Customer Development Methodology and the Lean Startup movement will recognize that this comes straight out of the Customer Development playbook.
While this seems simple, I can assure you that truly understanding the value of what you have in quantitative terms suitable to being able to set pricing takes time and lot of work. In my mind, anyone who can get this down in less than three iterations is brilliant.
The end result: you should have a gut level understanding of the value of what you have to offer and more importantly who your target customer is. The last is key because in my experience, the worst price negotiations usually occur with people who are slightly off the target customer profile.
And now you're ready to sell, right? Well, not quite. The final step: deciding what to say, will be the subject of the next post.
* For shorthand's sake, wherever I use the term product, I mean both products and services.
One of the sources of fear in selling comes from a lack of confidence in the value of the product or service* that you are providing. The cure for this is not psyching oneself up or two shots of tequila but rather understanding the value of what you have to offer to your customers (marketing term: product/market fit). So how does one go about doing this?
With respect to needs and wants, you are looking for three things: overt pain, latent pain, and wants (see example below). Solving overt pain has the highest value and is usually an easy sell. Latent pain requires one to elevate awareness in the customer's mind. Don't expect to get paid much satisfying a mere want.
Step 2: Create a Product Feature Hypotheses - How can you fulfill the customer's needs? What are the core features required vs. the nice-to-haves?
Step 3: Create a Value Proposition Hypotheses - What is the ranked priority of customer needs and which of my product features is the customer likely to value the most? The least? What other ways could the customer fulfill their needs (marketing term: competitive substitutes) and what is their price?
Step 4: Test the Concept - Identify some number of people ( the sample size will depend on what type of product you have) who fit the Target Customer Hypotheses and talk to them or find some other method of obtaining feedback. Are your hypotheses about the customer's needs etc. correct or do they require adjustment? Is the customer interested in your Product Feature Hypotheses or do they require adjustment?
Step 5: Iterate Until Validation - What is validation? The only legitimate form of validation is a monetary commitment either in the form of a purchase order, a contingent P.O., or a binding letter of commitment. Free does not count. Non-binding letters of commitment do not count. A beta testing commitment probably does not count unless the customer is having to commit significant dollars and people to executing the beta test. Only at validation do hypotheses convert to facts.
Those of you familiar with Steve Blank's Customer Development Methodology and the Lean Startup movement will recognize that this comes straight out of the Customer Development playbook.
While this seems simple, I can assure you that truly understanding the value of what you have in quantitative terms suitable to being able to set pricing takes time and lot of work. In my mind, anyone who can get this down in less than three iterations is brilliant.
The end result: you should have a gut level understanding of the value of what you have to offer and more importantly who your target customer is. The last is key because in my experience, the worst price negotiations usually occur with people who are slightly off the target customer profile.
And now you're ready to sell, right? Well, not quite. The final step: deciding what to say, will be the subject of the next post.
* For shorthand's sake, wherever I use the term product, I mean both products and services.
Monday, April 19, 2010
Fear of Selling
1st of a 3 Part Series on Consultative Selling
On Saturday, I had the privilege of speaking at a seminar entitled "Start Your Own Business" sponsored by Peninsula Bible Church in Palo Alto, CA. During the Q&A session, a great question came up,
My answer: Don't think of it as selling, think of it as problem solving.
In my experience, when I hear "I can't sell," or some variant, its typically because of one of three underlying reasons:
Sales is not about pushing a product or service that you have on an unwilling victim. It's about matching what you have with a customer's need. If you can find a match, you have the basis for a sale. If you can't, you don't.
What's ironic about the question from this particular audience, is that I know many of these people are great "people" people. Many are extraordinarily good at seeking out people with needs in the congregation and finding creative ways to help. This is pretty much how sales works; find a need and fill it. The big difference is that in sales, you are seeking to get paid for fulfilling the need. This interjects an element of transactional self-interest absent from a pure helping relationship.
But what sometimes gets lost in all the press about Wall Street abuses is that good business is based on relationships, not transactions. In fact, I would assert that it is when a business relationship shifts towards being purely transactional, that abuses flourish. The fact that money changes hands in a business relationship shouldn't negate the mutual benefits to be derived from that relationship. (Of course, it's important that both parties are clear from the beginning that what is being entered into is a business relationship, not a purely personal one.) Just think about products or services that you've purchased that you've been happy with. Did the fact that money was involved taint the relationship? Or did you feel like you got a good value?
This leads to the issue in the second bullet point: lack of confidence in the value of what is being offered. Before you sell, you need to know the value of your product or service. If you believe the value is truly there, then this should be a source of confidence, not a cause for apology. Good sales people will tell you that the products or services that they are most effective at selling are the ones that they know at a gut level provide intrinsic value to their customers. (Marketing departments pay attention: if you're encountering resistance from your sales force in selling certain lines, maybe it's because they don't believe the value is there and you need to dig deeper.)
Now understanding the value of what you have can actually be very difficult. How you go about determining this will be the subject of Part 2 of this series.
Let's assume for now that you do understand the value of what you're offering to a prospective customer and that you've this boiled down to a fairly succinct elevator pitch (covered in Part 3 of this series). When you do this, one of three things will happen:
Sales is not about closing every order. It's about creating a mutually beneficial relationship, where in exchange for money, you are delivering a product or service of value to that person.
Next week, we'll look at how to determine the value of your product or service.
"What if I want to start a business but I hate to sell?"
My answer: Don't think of it as selling, think of it as problem solving.
In my experience, when I hear "I can't sell," or some variant, its typically because of one of three underlying reasons:
- Fear of rejection
- Lack of confidence in the value of the product or service being offered
- "Telesales-at-dinner" view of sales
Sales is not about pushing a product or service that you have on an unwilling victim. It's about matching what you have with a customer's need. If you can find a match, you have the basis for a sale. If you can't, you don't.
What's ironic about the question from this particular audience, is that I know many of these people are great "people" people. Many are extraordinarily good at seeking out people with needs in the congregation and finding creative ways to help. This is pretty much how sales works; find a need and fill it. The big difference is that in sales, you are seeking to get paid for fulfilling the need. This interjects an element of transactional self-interest absent from a pure helping relationship.
But what sometimes gets lost in all the press about Wall Street abuses is that good business is based on relationships, not transactions. In fact, I would assert that it is when a business relationship shifts towards being purely transactional, that abuses flourish. The fact that money changes hands in a business relationship shouldn't negate the mutual benefits to be derived from that relationship. (Of course, it's important that both parties are clear from the beginning that what is being entered into is a business relationship, not a purely personal one.) Just think about products or services that you've purchased that you've been happy with. Did the fact that money was involved taint the relationship? Or did you feel like you got a good value?
This leads to the issue in the second bullet point: lack of confidence in the value of what is being offered. Before you sell, you need to know the value of your product or service. If you believe the value is truly there, then this should be a source of confidence, not a cause for apology. Good sales people will tell you that the products or services that they are most effective at selling are the ones that they know at a gut level provide intrinsic value to their customers. (Marketing departments pay attention: if you're encountering resistance from your sales force in selling certain lines, maybe it's because they don't believe the value is there and you need to dig deeper.)
Now understanding the value of what you have can actually be very difficult. How you go about determining this will be the subject of Part 2 of this series.
Let's assume for now that you do understand the value of what you're offering to a prospective customer and that you've this boiled down to a fairly succinct elevator pitch (covered in Part 3 of this series). When you do this, one of three things will happen:
- Nothing - In which case you need to go back and reassess the value of what you have and/or your elevator pitch.
- Rejection - Now most people when they do this will do so politely at first. After all, rejecting someone can be even more uncomfortable than being rejected. (Just ask a high school girl whose been asked to the prom by a boy she isn't really interested in.) So the "no" will likely be a gentle one. Accept this and then follow up and find out why? Let the other person know that you respect this and ask them if they wouldn't mind answering a few questions to help you improve your offering or better direct you to someone they think might be a better candidate for your product or service. Turn rejection into a learning opportunity (fancy term: market research).
- An Expression of Interest - Treat this as an invitation that the other person wants to hear more. If they don't ask specific questions, the best way to move the process along is to ask questions. And don't forget to let the prospect ask questions back. For some reason, people never seem to consider questions as selling (unless you're asking leading questions.) I've always found this puzzling because questions are at the very heart of selling. It is only by asking questions that you can truly discover what the underlying needs are and whether you do or don't have a fit.
Sales is not about closing every order. It's about creating a mutually beneficial relationship, where in exchange for money, you are delivering a product or service of value to that person.
Next week, we'll look at how to determine the value of your product or service.
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