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Selling and the Difference Between Price and Cost

You sell a product or service and you have many competitors that sell a similar product or service. Winning means having a differentiation strategy, and that differentiation is about the difference in outcomes.

Let’s say that you sell a product or service that is priced at $100,000. Your competitor sells something similar that they price at $90,000. All things being equal, your competitor’s price is lower and your dream client is going to very easily decide that the same result or outcome isn’t worth paying you an extra 10%.

Your role in sales is to make all things unequal. This means shifting the competition from price to cost.

Making All Things Unequal

Let’s say your competitor’s product or service saves the dream client whose business you are both competing for a total of $120,000 in direct costs. This means your dream client is paying $.75 for every dollar of value created.

If your product or service creates more than $133,400 in value by saving your client more in direct costs, by increasing their revenue, or by generating additional profit (or some combination thereof) then your cost is lower. At $133,400 you are returning a dollar for every $.74 invested. Your price may be higher, but your cost is lower because you are creating more value.

Now all things are unequal. Especially if you are in front of the deal enough to have developed the relationships that make it easy to choose you over all others.

If It Were Only That Easy

Shifting the focus from price to cost isn’t easy.

You have to collect the kind of information that allows you to determine what your dream client’s problem, challenge, or opportunity is costing them. Too many salespeople don’t know how to acquire this information, and some are uncomfortable asking for it.

In lots of cases you are asking for information that your competitors are not asking for. This makes it more difficult for you obtain the information, but gives you the tremendous advantage of knowing that your competitors are limited to focusing only on price.

Calculating the return on investment isn’t easy either. It requires the business acumen to know how to generate the numbers that prove your case once you have collected them.

Proving the return on the investment means having the business acumen, the situational knowledge, and the subject matter expertise to know how to explain the value creation and how it actually lowers your dream client’s costs—a dream client who might have an easier time understanding price.

Doing what is necessary to shift your sales strategy from price to cost is difficult. But doing so focuses your strategy on the differences that make a difference for your clients, and it is the winning strategy.

Questions

Be honest, how easy is it for you to fall into the commodity trap and try to match your competitors on price?

How much skill is required to sell on price alone? What are the attributes and skills that allow the “salesperson” to sell on price alone? How much value creation exists when you sell on price alone? How proud of yourself are you when you win by having the lowest price, knowing that any “salesperson” with a lower price would have beaten you? Then why would you want to run this race?

Is what you do really consultative selling? Is it really about shifting the competition from price to the value you create?

Do you recognize that low price is a business strategy (operational efficiency) and not a sales strategy? Do you recognize that price is what you sell when you can’t sell value?

What do you have to do to learn to shift the competition from price to cost? What do you have to read? What do you have to learn to do? What behaviors do you have to change?


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Comments

comments

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  • http://lookingtobusiness.com/ Daniel M. Wood

    Great article here Anthony.
    Calculating the ROI is something the company should be ready to do every time.

    Since we know what we need to make the calculations we can train our sales people to ask the right questions, get the information and then put it together for them so they can present it with confidence and proof.

    The problem with price is that it really doesn’t say anything, just like in your example. Spending 10% more can save 10% extra or it might not. Price in itself is not important, cost is what the customers really care about. Price just stands for the risk involved in the purchase, if you can eliminate that risk, problem solved.

    //Daniel

  • http://www.m62.net Jessica pyne

    Great post, and one I absolutely agree with – interestingly enough, I have been engaging in group discussions on LinkedIn on this very topic. All salespeople should sell on value – and the price a prospect is willing to pay is determined by ‘perceived’ value. It is the salesperson’s job to ensure that all prospects can clearly see why your product or service will bring a greater ROI – even if the price of purchase is higher.

  • Meg Swaim

    I really enjoyed this article, and agree 100% with the statement, “Your role in sales is to make all things unequal.” EXACTLY!

  • http://www.justflues.co.uk mo pelham

    I too enjoyed.
    Echoed many of my own sentiments.

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