The price objection is like dirty water at the mouth of the river. You can invest your time trying to clean up the mess as it reaches its final destination, but you won’t succeed. If you want success, you have to address the problem upstream.
You can address the price objection after delivering a price, but that is usually too late. Contractors’ habit of asking for a better price is often nothing more than a knee-jerk reaction to keep suppliers honest. The tactic is effective because most salespeople have done little to establish value early in the process (upstream) and are caught reacting, ultimately relinquishing one point to garner the sale. Almost nothing good comes from the lower price.
The client doesn’t necessarily gain, particularly on a psychological level. The reduced price creates an expectation that negotiations will be part of the game. More important, the customer wonders why the salesperson didn’t just offer the best price up front and whether it actually was the best possible price. The fact is that a client will only know that there is no more wiggle room when the salesperson says so.
A vendor certainly doesn’t gain from a lower price. The salesperson feels bad and doubts his sales acumen. He wonders if he left money on the table. Most important, the “point” he offered creates a serious dent in profitability. A single percentage point reduction ultimately costs an LBM dealer earning between 3% and 5% net profit between 20% and 33% of that profit.
The solution to the ubiquitous challenge of the price objection is to resolve the problem upstream. I believe a large factor is the mindset of the salesperson. Here are some ways to begin.
1. Prospect your way to pricing confidence. You can’t win a negotiation from which you can’t walk. The only way to achieve the mindset to walk from a negotiation is by having options. Prospecting gives you options and perceptions of abundance that enable you to hold your price, knowing other prospects are waiting in the wings.
2. Slow down. Somewhere, right now, a salesperson is asking a builder he just met, “Do you have anything coming up that I can bid on?” Instead of taking time to understand clients’ challenges and ways to help them grow, the salesperson is voluntarily auctioning himself into a lower price. First, understand your clients’ marketing challenges in order to offer ways they can mark up their prices. Then, understand their operational challenges in order to shift the dialogue from price to total cost of doing business. Slow down the dialogue to improve your opportunities for fair margins.
3. Have faith in loyalty. Be wary of snagging business with lower prices. You’ll lose the customers you get with lower prices exactly the way you got them: Someone else will come along to take that business with a lower price. In fact, my studies with LBM dealers have proven that most contractors are not fond of switching suppliers. Loyalty (measured as customer retention) usually runs between 80% and 90%. Thus, it is better to slowly acquire clients who are willing to pay your fair margin with the belief that they will remain loyal.
—Rick Davis is the president of Building Leaders, a training organization devoted exclusively to the sale of building materials. His latest book, “The Sales Secret,” is now available. To Order it, go to buildingleaders.com, call 773.769.4409, or contact Rick at firstname.lastname@example.org.