Educate salespeople on the financial fundamentals of your organization. If your company prefers to be secretive about the financial statements of the company, at least share with them general information that illustrates the thin line between profits and loss.
Set the price at which you will do business. The successful negotiation begins long before discussions occur. Personally, I prefer to set the pricing structure in a way that eliminates price negotiation. The Saturn car company has successfully built an entire business on this model. Offer your best price up front and you have nothing left to negotiate.
Create an equitable pricing structure. Nothing is more embarrassing than an important builder-customer discovering that he has been receiving pricing that is higher than a lower-volume builder. Some builders, in spite of their purchasing clout, are more reasonable than smaller-volume builders. A successful LBM dealer creates a pricing structure that rewards loyalty, sales volume, and the purchase of multiple product lines. When you create a solid pricing structure your salespeople and customers can rely on, more time is available for the important tasks of prospecting and customer service.
Slow down negotiations. As a 20-year veteran of the building materials industry, I’d be pretty naive not to recognize that this is an industry of combative negotiations. There are, in fact, times when builders put pressure on the salesperson. In these situations, it is imperative that your sales-people are trained to slow down the process. All too often the salesperson rushes to the phone to plead with the sales manager for a better price. An outstanding sales manager will calmly begin asking the necessary questions to determine how well the salesperson really understands the situation.
If you must negotiate, get something back. This is an essential component of the win-win negotiation for both parties. When a price reduction is offered, a salesperson should always receive a concession. This may take the form of financial remunerations such as long-term purchasing commitments or faster payment terms. It may also take the form of intangible remunerations such as referrals or consolidating delivery packages. Whatever form the reciprocity takes, it is an essential component that allows the salesperson to justify his or her actions. At the same time, the customer is able to rationalize the reasoning for a reduced price without supposing that the original quote was mere game playing.
But try holding firm. There is a moment in the life of many salespeople when they decide to simply tell the customer, “That is my best price.” At that moment, many careers are changed in dramatic fashion. It only takes one time to overcome fear forever.
Thus, the surest way to find out if you can gain a better margin is to hold your price. You may lose a sale in the process or, better yet, you may dramatically increase your profits. One thing is certain: You’ll never know until you try.
Rick Davis is president of Building Leaders, Inc., a Chicago-based sales training organization.
773.769.4409
E-mail: rickdavis@buildingleaders.com
Profit /Loss Statement for XYZ Distribution
