At my firm, we offer a full spectrum of “commercial excellence” sales consultant services, and we wind up helping clients determine what kind of pricing opportunity they have and then we wind up assisting them to implement pricing improvements. This involves sales − and it’s not naturally a pleasant activity.
In the most challenging cases, we work with companies that haven’t asked for an increase in prices for a long time. They will now have to ask because their cost structure is out of whack with their price list. If handled poorly, this can alienate customers and damage relationships, so we help them work through the process. However, these steps can be used to solve many sales (and other) problems so I thought I would share them.
Our process is easy to remember as it only has four steps:
- Assess the situation.
- Define a solution or direction.
- Build the solution.
- Optimize or continually improve.
Assessing the situation is exactly what it sounds like − determine how you are performing and what needs to improve. Sticking with the price increase scenario, we might find that the following conditions are true:
- Costs have risen.
- The price sheet needs revision.
- We have not asked for a price increase in a long time, so the salespeople are out of practice.
- Our customers have not received a request for a price increase in a long time so there are unprepared for the conversation.
- Significant earnings depend on our ability to get this increase (2.5 percent of revenue to EBITDA).
At this stage, it is important to temporarily put off problem solving. It is OK to think in terms of implications, though. For instance, in the list above, the simple fact is we haven’t asked for an increase in a long time. The implication is we may not be good at it.
I haven’t said anything about what it takes to be successful at this; I’m just getting down all the facts of the situation. This helps to remove emotions and also helps to delay the urge to problem solve before we have laid out all the issues.
Once we feel we have explored the problem thoroughly, and have written down all the salient issues and constraints to solving the problem, we can define possible solutions. In this case we wind up with a list something like this:
Sales Consultant Tip: Raise Prices on Unprofitable Customers and Products
1. Begin by preparing customers for this discussion with communications about prices and costs.
2. Have the account reps develop possible solutions for each customer specific to the products and/or services that they purchase; suggesting substitutions where appropriate, modifications to the product or service that make it more profitable or raising prices when necessary.
3. Prepare account reps with a plan to share with the customer the account-specific plan for recovering the situation and returning it to balance.
4. Have the account reps practice their customer communications in order to disarm the high emotions that usually accompany this type of conversation.
In order to implement this solution, account reps will be required to reach out and touch (call or visit, don’t email) each of the affected accounts. This should be tracked to ensure it is completed on a timetable that meets company goals and respects customers by giving them the time they need to adjust.
The final step in the process is one that is often overlooked by companies solving their own issues. Optimization, or continuous improvement, is often overlooked because people tend to think that once something is fixed, it will stay that way.
In reality, new initiatives and new work methods need reinforcement and adjustment to really take for the long haul, so you might as well factor in an annual review of the new behavior to ensure that it continues to stick.
During the annual review of the customer price management process, the company should review hard performance metrics like, “Did we get the price?” However, activity levels should also be measured as they will often show movement in the correct direction prior to the metrics changing.
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Editor’s Note: This article was originally published on May 15, 2013.