This question comes up frequently when I’m meeting with sales managers.
What they are wondering is when does it make sense for salespeople to have control of the prices they charge customers and how much flexibility should they have?
It’s a great question that far too many organizations never discuss, for fear of the impact a change might have on the business.
If you’re a salesperson who has control over changing prices, then I’m sure you’ll say it’s essential for you to have control.
Conversely, if you’re a CFO or other senior level manager, you’ll most likely say that salespeople should have zero control over pricing, as price is something far too important to be trusted to a salesperson.
All of this gets wrapped up in the argument of whether it is better to have more profit or more sales (as if it is impossible to have both!)
There is a basic rule I believe should be followed, and that is salespeople should NOT have any control over pricing.
Price is too important because of its impact on profit and long-term brand equity.
Senior management should set prices after dialogue with both Marketing and Sales. Once prices are set, then that’s it. No changes. At the street level, the focus should be on selling, not negotiating over price.
Basis for my rule of not allowing salespeople to have control over pricing is simple. If they have control, they will use it. Regardless of how they say they won’t abuse the power, they will.
Before you question me on this, let me remind you I’m a salesperson myself.
I began my career as a salesperson and sold for years, so I don’t say this as some marketing stiff who has zero clue about how selling works. I believe I have quite a bit of credibility also because of the years I’ve spent consulting with companies regarding this issue.
We in sales will always use the tools we have available. It’s why we’re in sales. We’re resourceful, and thank goodness we are, because that’s how sales are made. It is because of that strong attribute that I believe salespeople should not have control over pricing. If they have that control, they will use it.
Take pricing control away from the sales force and there will be screaming and complaining about how the world is going to end. But once the roar dies down, the sales organization will realize the focus must be on things other than price.
That is exactly the objective.
Let the sales team focus on uncovering the customer’s needs and desired benefits.
Discounting is like a drug. Once you use it, getting off of it can be very difficult.
Salespeople will be quick to argue how it’s better to have sales at a slightly lower price than not having any sales at all. At best this is a shallow argument that simply doesn’t hold water, because what it is saying is the salesperson who needs a discounted price to close a sale has done everything else.
I refuse to buy that argument.
Reason I don’t buy it is because of what I stated earlier about how salespeople are resourceful and will use any and every tool available to close a sale. Take away price, and salespeople will find a way to still close the sale.
Discounting the price cuts profit, and if a company is selling with a 30% variable gross profit, discounting the top-line price by 10% is going to cut the profit line by 30%. That simply is not acceptable.
Establishing price must remain in the control of management, not on the street.
Put the focus on understanding the customer’s need at full price and don’t allow anything to come into play that could jeopardize that focus.
For more insight, check out my free eBook The Hidden Dangers of Discounting.
Copyright 2014, Mark Hunter “The Sales Hunter.” Sales Motivation Blog. Mark Hunter is the author of High-Profit Selling: Win the Sale Without Compromising on Price.