Understanding Your Value Proposition to Handle Pricing Pressure
How in the heck can two sales people who work for the same company and sell the same services to virtually the same customers have such a large disparity in their gross profit margins? I work with IT staffing and consulting firms all across the country and I run into this scenario quite frequently. One rep can consistently generate GP margins north of 30% while another struggles to close a deal at 25%. There are a number of reasons for how and why this happens. Let me share some insight and hopefully help you optimize your gross profit margins.
Lack of Self Confidence
The first issue and most common issue I see that holds sales people back with pricing pressure and sales negotiations and selling their service at a price that accurately reflects their value is self confidence. These are the sales people who are simply non-believers. They don't truly believe in their product or service offering and/or understand the value of their offering and the problems they solve for their customer. Lacking the understanding of your true value and self confidence is what causes most IT staffing sales professionals to cave when they feel pricing pressure from the client during a sales negotiation. Instead they focus on "complying" with their client's budget and being a steward to the client in ensuring they meet their negotiation terms. These sales people tend to be highly concerned-almost to the point of paranoia-about upseting or disappointing their client and often focus solely on ensuring that their candidates or proposal meet the client's demands. They tend to shy away from what can be perceived as a difficult conversation with the client due to a lack of self confidence. That difficult conversation by the way is a conversation about pricing or budget. This issue however, is actually a symptom of a bigger issue. I will get to that in a moment.
On the other hand, you have sales professionals who over the years have seen first hand the impact they have had on their client's business and how they have helped their client take a product to market, complete a project, reduce costs or generate a new revenue stream. These sales people have no....zero....zippo....issues with how they price their deals. The reason they have no issue with how they price their deals (or their client's budget) is because they understand the value they're delivering to their client.
A moment ago I said lack of self confidence is actually a symptom of a larger issue. That larger issue is the fact that the sales person who sells their service on the lower end of the GP spectrum doesn't understand the value of their work. Instead, these sales people simply price candidates based on "market rates" and focus on complying with their client's budget. This happens because they fail to understand the business value they're delivering for the client. Let me offer an example to illustrate my point.
Suppose my client-an online retailer-calls me and tells me they need to hire a Java developer for a project. Now I could take the common and all too ordinary approach of focusing on the skills, technologies and day to day responsibilities of the job and price my candidate accordingly. Or, I could take some time to properly probe and understand what problems the client needs my consultant to solve and why. I could also probe to understand who (customers, employees, suppliers, partners, etc) is affected by this problem. This helps me understand how big or prevalent of a problem my consultant will be solving for the client. Lastly, if I find out what sort of ROI the client expects from the work my consultant will be performing for him or her, I can start to quantify the impact I'll be having on my client's business (hence, I'm now starting to understand the business value I'm delivering).
Suppose I ask my client-the online retailer-these questions and I come to discover that they're losing online sales because their web site keeps crashing. As a result sales, gross profit dollars and market share begins to erode. Their customer service department is overwhelmed with angry customers because the web site keeps crashing because the web server and the database can't communicate. The phones in the call center ring off the hook!! Lastly, the CFO has to deliver bad news to shareholders and analysts on wall street because they're going to miss their quarterly sales forecast. Having had this dialogue, I'm now in a position to sell my service offering relavant to size and impact of the problem that is being solved.
When a sales professional understands the business value they're delivering for their client they can sell with supreme confidence and conviction. More importantly, the focus of the conversation has nothing to do with price, it's all about the value the client is receiving.
If you want to bump your gross profit margins and pad your commission checks and feel good about it, take some time to figure out and understand the business value you deliver for your clients.
About Dan Fisher
Dan Fisher is founder and owner of Menemsha Group, a provider of sales enablement solutions dedicated to helping IT staffing firms improve win rates, shorten their sales cycle, and increase revenue per sales rep. Since launching Menemsha Group in 2008, Dan has consulted with over 200 IT staffing firms and has invested over 5000 hours coaching IT staffing sales reps. He’s authored is his own proprietary sales methodology and has previously spoken at Staffing World, TechServe Alliance and Bullhorn Live 2012. Prior to launching Menemsha Group, Dan spent 16 years in the IT industry running local, regional and national sales teams. Dan worked for Kelly Services, Oracle Corporation and Alliance Consulting. Dan currently resides in Boston, Ma.