Too often in our businesses, we are attracted to providing the lowest-price solutions for a customer in order to make the sale. Just this past week I was told by another person that the right price to sell an item is "the price that gets the sale." I do not believe this because I feel that we may be leaving money on the table; often, we do. We will never know the right price! Sorry to break the news.
A few months ago, I suggested a cover letter on a quote as a way to separate you from your competition. Today I want to introduce you to choices. I want to present you with a sales technique that will not only help you land more sales, but land higher margins and gross profit dollars.
I will again use a roofing example to make my point because it is easy to explain.
Let's assume you have a customer who enters your facility to purchase a new roof for his home. You should ask many questions and not make any assumptions. As you ask the questions, mentally begin building options for the customer.
(A side note from my childhood: Many regular readers know that I grew up working in my father's lumberyard. We purchased products from HWI (now Do it Best). They came out with good/better/best options on paint brushes. This made it easy to decide what you wanted as a consumer, but it also made it easy for consumers and salespeople to grab the good or cheapest brush. That lesson also applies to this story.)
Since homeowners only purchase roofing a few times in their life, they need help deciding on what will work best for them. If you are selling to roofing contractors instead of homeowners, continue to read and share these ideas with the roofer. Roofers can charge more for labor and materials as they provide options
For the homeowner, however, consider providing three quotes; good, better, and best. But, don't call them that. Instead, label them Options 1, 2, and 3.
For example, in Option 1 present a three-tab shingle, 15-pound felt, and light 29 gauge valley and roof edging (AKA Style-D). The total pricewill come to around $4,000 with a 25% margin, so we are looking here at $1,000 in gross profit dollars.
Option 2 could be a 25-year architectural shingle with 30-pound felt, 26 gauge valley, and 26 gauge wide drip edge. This increases the price by $1,000, but it ups the potential margin by 5 points, too. A $5,000 order with a 30% margin will generate $1,500 in gross profit.
Note that in both options, it cost the same amount of money to sell, deliver, and collect. But, with Option 2 we added gross profit dollars.
Now to Option 3. Let's say you propose a 40-year architectural shingle, synthetic 30-pound felt, 26 gauge valley, and aluminum drip edge that will match the shingles. Add to this package premium lead jacks or vent jacks and change the ventilation products. Let's assume the sale is $10,000 and the margin is 35%. That's $3,500 in gross profit.
While you can be creative in your three choices for each customer, if you aren't providing three choices you are missing out. Here are eight reasons why:
- You might miss the sale if you only give only one choice and your product is not the quality the customer might expect. If you provide one option and it's the lowest price and lowest quality, they [customer] might just choose a competitor instead. Three-tab shingles will not work for all customers.
- If you only provide the high-end option, the customer might not be able to afford the high-end option and might purchase from a competitor. In this case, three-tab shingles might work.
- If you provide three options, the customer will think that you did your homework. Your time and foresight about options will make the customer feel you want the business, are familiar with products, and are trying to help come up with the best solution.
- By providing three options, you might move the customer from good to better, or in our case from $1,000 in gross profit to $1,500 in gross profit.
- Don't forget about benefit selling. "If you change your roof every 25 years, why would you put on cheap flashing?" you might ask. If you are selling paint, you can use the labor cost example, in that you want to only have to apply one coat instead of two or more. Match up the selling examples with the products you are selling.
- If special orders are a big part of your business, you must give a customer three options. Special orders are usually placed because the customer wants something that is not normally stocked because of size or selection.
- When you get a referral because of pyramid selling or because of a drive by, the potential customer will place a lot of trust in the salesperson product selection, but still allow the customer to make the final choice.
- Margins on special orders don't have to be the same. If you are selling windows and you offer a vinyl window, aluminum clad window, and a top of the line window, a higher-priced window can be sold at a higher margin percentage. Nobody made a rule that the same margin has to be used across the board.
The title of this article is "three Options Equal Three Points," but in my example I actually have three examples with 25, 30, and 35 points. This is a spread of 10. Still, use this catchy phrase with your salespeople and convince them that they can raise their overall margins by three points if a small percentage of their customers go for the higher end products, a medium amount choose the middle of the road, and the low end, just stay in the low-end slot. That is $30,000 in net profit for every $1 million in sales. Wow!
Chris Rader is a consultant based in Lafayette, La. Contact him at [email protected].