It’s a frustrating problem: Your pricing organization must protect the company’s margins from eroding, but salespeople have little to no control over the cost of a product — that depends more on the efficiency of your production process.
When the sales team needs some kind of leverage to win deals, salespeople often resort to deep discounts. If this apparent dilemma is causing friction in your company, it’s time to take control with discount discipline.
Here are five steps that lead you out of the dilemma and help your sales team see discount discipline as key to their success:
1) Change the game from volume to price: Salespeople are typically given a strong incentive to focus on volume, rather than price or margin. Think about a product’s path to maturity and how it applies to your sales team. The push for high volume works in a high-growth market, when you’re going after market share. But in a mature market where typically the business goal is to increase margins, volume-based sales targets create an environment in which sales goals do not align with those of the business.
Having a margin incentive in place ensures you’re not eating into your own profits as you go after the same pool of people. Without a margin incentive, salespeople aren’t likely to comply with discount discipline. Nevertheless, compensation packages focused exclusively on margin have their shortcomings, since much of what goes into that margin lies beyond the control of sales.
The most mature companies, regardless of their market, incentivize salespeople based on the pricing they’re offering. When you compensate based on pricing, your discount discipline becomes much more effective and useful to the sales team.
2) Empower salespeople to drive higher prices: When you align incentives with pricing, it gives reps a bigger stake in the part of the sales process where they have the greatest control. They have the power to nudge up a price for an existing customer or go after premium pricing for a new customer.
A good way to support this practice is by providing price recommendations during the sale. Integrating price guidance within your Customer Relationship Management (CRM) and Configure Price Quote (CPQ) solutions gives them tools to win the deal through pricing, improving motivation and the adoption of discount discipline.
3) Set clear benchmarks and targets: To ensure discount discipline, reps need to have confidence they’re able to win deals without falling back on a discount. Providing clear, data-driven benchmarks, such as prices achieved in similar accounts, helps build this confidence. They’re able to quote a higher price to a customer without worrying about their win rate if they know that they or one of their colleagues have won at this price point in the past.
4) Improve product knowledge: A new sales rep may know less about their products than the customers and prospects, making it difficult for them to defend the value and price. This knowledge gap is exacerbated by the relatively high turnover in sales. By investing in education for product knowledge, you help reps understand the company’s value proposition and the problems they solve for the customer, giving them the tools they need to fight for the right price.
5) Help reps improve sales offers for each customer: Best-in-class companies leverage CPQ technologies to overcome product knowledge gaps within their sales organizations. CPQ solutions provide companies with a guided sales process that prompts the rep to ask the customer questions related to the problems that they are trying to solve and how the company’s product offerings may be able to address their needs. These technologies help reps become more nimble, learn the products more quickly and get the right product to the customer at the right price point without having to rely on experts within the company.
The real value of this guided sales process is that it speeds up the learning curve for new reps. Instead of product proficiency taking months or a year of training, that knowledge is available to reps on the fly as they’re developing a quote.
When your sales reps need a lever to drive sales opportunities forward, they have the greatest control over the price. Incentivizing volume invites price erosion, and product cost structures are largely beyond the sales team’s control. For example, the same widget produced in a plant on the east coast may have a different cost structure than one produced in a less efficient plant out west. In this environment a rep on the east coast might get the same price for the widget as one on the west coast, but the one with the more favorable margin structure would be incented more.
The way to get away from penalizing the sales rep for internal cost structure, while also encouraging them to care about discount discipline, is by providing the sales person with targeted pricing guidance, regardless of margin. To change the game, make sure you have clear targets and benchmarks that you expect reps to achieve, and use price-based compensation to hold them accountable.