CEOs in Technology on Ulitzer

In this article, we will examine three of the most common and deadly mistakes companies make - mistakes that can be easily rectified. If you recognize any of these mistakes in your business, you can and should take immediate corrective action.

Mistake #1 - Compensate Your Salespeople Based On Revenue
We all know the phrase “compensation drives behavior.” Companies that compensate their salespeople based on revenue will find themselves under constant downward pricing pressure. Salespeople will focus on driving revenue only, and solely getting the deal, regardless of the price. Worst of all, they will respond to customer objections with offers of greater discounts. They will spend more time trying to convince management that they need more discounts, and that lower prices are needed, than they will reinforcing the value the product delivers, and defending its price to the customer.

If you recognize this in your business, your revenues are probably OK, but your profits are probably not. Your business has been commoditized and your salespeople have lost the skills and training they might once have had to sell your products on value, to defend your pricing and to heartily contribute to the profits of your company.

Mistake #2 - Believe What Your Customers are Telling You
Whenever your company has a conversation with your customers, whether it is through your salespeople, marketing representatives, or executives, the customers have one overriding agenda - to make sure that they get the best deal possible the next time they buy from you. This means they will say whatever they need to in order to get a lower price, more for their money, longer payment terms, free included services – or whatever it is that is relevant for your product or services and your business.

If you believe everything your customers say, you will include more options and features with your product than you really must, your costs will increase, and your profits will suffer. You will also end up pricing your delivered product too low. But then again, if your salespeople are not trained and practiced at selling value, or defending prices, and regularly use discounting as the main technique to close deals, then it's not going to matter much anyway.

Mistake #3 - Use Simplistic Pricing Models
Most companies use a simplistic pricing model. They take their cost and mark it up by some percentage. Or, just as bad, they base price on their gut feeling or some competitor's price list. This is a de facto guarantee that you will end up with the wrong price; too high for some segments and your sales volume will suffer - too low for other segments and you'll leave money on the table - or worse, you price even lower and you lose both sales volume and leave money on the table!

Yet, there are proven methods to find out exactly what customers are actually willing to pay, and what will make them pay more. These methods are based on decision behavior simulations through market research. Such research is not free - but the payback is often just a few weeks, up to a couple of months.

Summary
Some companies do not make the mistakes mentioned here. They compensate sales people on profits, they teach salespeople how to sell the value and benefits of their product and they don't resort to cutting price in order to close business. Finally, they don't believe all their customers' stories about why they need a better deal. They price based on the known value perceptions of their buyers. And - guess what - you already know who these vaunted companies are! They are the leaders in your market vertical. They are the companies who grow fast, are the most profitable, and who continue to increase their market share, continue to have the funds to develop innovative products and nibble away share from commoditized competitors.

So if you are not yet one of these companies - what can you do? It is quite simple. Replace gut feeling with process, hard data, analytics, good price management, and finally, hard data about what your customers really want, and how much they really are willing to pay. Then you need to train your salespeople to defend your product and pricing, to close the deal without discounting. Instituting such a process will lead to enormous and quick paybacks!