I plead guilty to enjoying a cold beer or two, and I’ve watched with amazement as the decade-long bull market in the craft beer industry shows no signs of abating.
Many managers think their sales team needs help building negotiation skills but they can’t articulate why. In this second part of a two-part article, Grande Lum, the founder of the sales consulting firm Accordence, summarizes the final four factors (out of a total of nine) that can help sales managers determine if and where negotiation improvements can be made.
If you missed Part I of this article, you can find it here.
1. Sales management is usually the dominant negotiator, rather than a coach.
The sales manager adds the most value to the sale in the beginning and when coaching at the end. In the beginning, they have the best chance of assessing the situation, adding their experience and understanding of what may be needed to conclude the sale. Research shows that the later the sales manager is brought into a sale, the more likely they will destroy value. Not that they want to, but when they have not been a part of the process up front, the customer usually sees them as there to win the deal or as the final negotiating authority. This usually means lowering price below what the salesperson has negotiated already. The more the manager can stay out of the direct negotiation and leave it to the salesperson the more the salesperson stays in control. The manager can be the coach in the background, but only if they are in the sales process early and understand the situation.
2. The sales team regularly culminates their negotiations for less than 30% above their bottom line.
This is an indication that there is no concession strategy. More importantly, it is an indication that salespeople are not setting both “top line” and “bottom line” goals for the negotiation. What really hurts is that many times a salesperson’s first offer is already a concession. In essence they have negotiated with themselves before ever presenting the offer to the buyer. We find the sales person has a keen sense of their bottom line but has not set their top-line goal. So their bottom line becomes their top line resulting in lost margin for the company and less compensation for the saleperson. We find when salespeople regularly set both top-line and bottom-line goals they usually close the sale at an average of 30 percent above their bottom line. Those that only focus on the bottom line close the sale at less than 10 percent above their bottom line.
3. Salespeople cannot consistently demonstrate to customers why the value of their offer is objective and fair; concessions do not have rationale.
This one is very straightforward but hard to follow. All offers, concessions and counteroffers must have objective and rational reasons for being presented. If not, it opens you up to haggling because there is no basis for the offer, concession or counteroffer. So, in effect, the customer believes that any offer, concession or counteroffer is “fair.” Some indications that may have given the customer this perception are a history of conceding by an even percentage (i.e., 5-percent increments), or giving the same additional value for free (i.e., same marketing program or software).
4. Your salespeople overreact to negotiation tactics.
Again, this overreaction is another indication of lack of a strategy regarding offers, concessions and counteroffers. In addition, it indicates that they have not thought through their no-agreement alternatives. More importantly, they have not thought through their customer’s no-agreement alternatives and how likely they are to exercise them. Fairly often we see very good salespeople lose their credibility with the company and their customer because of an overreaction to customer tactics. We always say that in order to be effective with your customer you must have credibility with your company.
And, in order to be effective with your company you must have credibility with your customer. The two run in parallel. How often do your salespeople or sales managers come in saying, “Look, if you want the business, this is where we have to be” or “If you don’t match this price and these terms, they are going to the competition.” This is usually an over-reaction to a tactic by the customer. Without a good strategy as discussed here, a good salesperson runs the risk of losing credibility with the company and their customer by overreacting to such a tactic.
From Theory to Practice
We performed this assessment with a large capital medical equipment company a few years ago. Their gross margins were in slow decline and they wanted to stem the tide and actually grow them. After discussing theses nine factors as well as looking at their selling process and compensation plan, the company decided to focus on making negotiation a core competency for their sales, finance and contracting teams. Everyone went through a two-day negotiation session and goals were established.
We reworked their sales process and compensation plan to create more leverage earlier in the process. The team implemented the strategy for a year and announced at their national sales meeting that they had increased their gross margin percentage by four points in the past year, which added over $1 million dollars of margin. They achieved these goals by focusing on how they sold and negotiated and showed an impressive result in today’s marketplace.
These factors are accurate indicators of how well you are doing at negotiating value in the marketplace. Once you know your soft spots, creating strategies and targets to improve revenue or margin becomes clearer.
The authors are executives at Accordence, a negotiations and interactions training consultancy that helps organizations maximize negotiation as a competitive advantage.