There is an inevitable pressure on price. In organisations with large sales forces, many disagreements stem from a perception that some “lazy sales people sell on price”. In smaller businesses, price is one of the weapons at our disposal. However, we must ensure that we avoid falling into the trap of giving too much away in order to secure a sale. Most of us get asked for a discount from time to time. In some markets though, things have gone two or more steps beyond the constant need to sharpen pencils to make sure that pricing is competitive.

If your business is constantly asked for a discount, you really must follow some simple rules:

1. Know who and what you are competing with. For some of us, this is easy – we only compete with businesses just like our own. For others it can be more complex. We might be competing with businesses that have completely different cost structures to our own. Or we may be competing for a share of the budget with businesses that offer completely different services to our own – depending on the situation.

2. Understand direct competitors’ pricing strategy. This can be seem very hard to achieve, but it can prove extremely easy – if you ask the right questions of the right people. (Recently, a member of a client’s engineering team was given precise details of an incumbent suppliers pricing by a new member of staff who sees a change of supplier as making his own life easier.)

3. Know precisely what your own cost base is. If your business is people intensive with a consequent reliance on rather slim margins, you need to review your cost information at least once per month – especially if fuel and transport costs are significant. If margins are better, but have to cover more substantial overheads, then your calculations may need to be more complex to ensure that you win sufficient work at the right price to exceed your break-even point. If in doubt, ask your accountant to help with this.

4. Be absolutely sure, and consistent, about the value you provide. Tell people about the benefits of your products or services. Make sure that you remind customers and prospects of these regularly – especially in any new quotations. Phrase your benefits statements in customer terms. If you include as standard items that competitors charge extra for, make sure you emphasise these in any covering letter or email as well as in the quotation itself.

5. Have the courage to stick to your pricing policy – and the wisdom to know when to offer a further discount to secure business that is in line with your strategic plan. Sales at any price can jeopardise your margins and therefore your business. Equally, a long period without winning any new business can kill your business. Over-dependence on one or two key accounts can also be very dangerous.

6. Make sure you understand the real cost of those “little extras”. An extra 60 days on payment terms can prove costly – especially if your cash-flow situation is poor and you are forced in to short term borrowing or factoring.

This was a guest post by Paul Fileman of SPS who are a national team of proven senior management professionals, passionate about working to help businesses achieve their next level of development and performance. Whether they are facing market changes, financial problems, people/skills issues, or are preparing a major project, they offer dedicated support from a multi-disciplined team of experts.

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