This article is longer than usual, because pricing is a particularly important part of sales. Before diving into a step-by-step example, here’s a high-level overview of what we’ll cover:
- Start with a higher price point.
- Handle any non-price objections first.
- Handle the price objection indirectly.
- Determine what your prospect is willing to pay.
- How to lower your price.
Let’s imagine you’re a SaaS salesperson selling a VoIP solution.
You’ve got three different packages:
- Basic ($500 per year)
- Standard ($1,000 per year)
- Premium ($2,000 per year)
And each package has features that can be added or removed (which raises or lowers the price).
Which one do you present to the prospect?
Not the Basic package.
Because then you have nowhere to go. The Basic package is your cheapest offering. If the prospect says “that’s too expensive,” then you’re stuck. You can’t go any lower.
The best shot you have at that point is to overcome the price objection, but even then, your best case scenario is closing the prospect on your lowest package.
But if you start with the Standard or the Premium and the prospect says “that’s too expensive,” then you have some wiggle room. In other words, you maintain your ability to offer a discount.
Whether you choose the Standard or the Premium depends on what you learned about your prospect during qualifying and throughout the pitch.
Maybe you learned that their current VoIP solution doesn’t include call tracking and this is something they would really like—then you should offer a package that includes call tracking.
You also learned that their current solution costs $750 for the year.
In this case, you definitely don’t want to start with your bare-bones Basic package. Your prospect’s current solution is already costing them almost as much as your Standard package, and they want to add new features.
For a prospect like this (one who sees the value in what you’re offering and has a current price point that’s not too far off from your top-shelf offering), you should start with your fully-loaded Premium package.
Now, in a sales encounter like this, there are two unsuccessful mindsets that will cause a junior rep to start with a lower price point than they should:
(I) If their current price is $750, I can offer them our solution at $500 and they’ll be sure to buy. My commission won’t be as much, but at least I’ll get a guaranteed sale.
(II) I don’t want to offer something too much higher than what they’re already paying (or expecting to pay). They might get mad or scoff at me and tell me it’s ridiculous.
Successful salespeople don’t have either of these mindsets. A successful salesperson thinks like this:
(III) This is the best prospect I’ve had all week. They’re perfectly qualified and seem to resonate with the value from my pitch. I’m going to take this opportunity to bring in a bigger account. If they balk at the price, I’ll remind them of the value that they saw earlier.
Other than having the flexibility to go lower if your prospect objects, there’s also a psychological reason that it’s best to start with a higher price. It’s called anchoring.
Put simply, anchoring bias is the tendency that people have to “give too much weight to the first number put forth in a discussion and then inadequately adjust from that starting point.” You can read more about anchoring from Harvard Law School here.
For the purpose of sales, anchoring means that starting with a higher price point sets your prospect’s “anchor” higher, so that any lower prices mentioned thereafter seem like a “deal” compared to the price point that was first mentioned.
Quick summary. There are two reasons a salesperson should start by offering their prospect a higher price point. First, they maintain their ability to discount. Second, they take advantage of the psychological effect of anchoring.
So, for our example, we know we’re going to ask for the sale on the fully-loaded Premium package. Now, what happens next? There are three possibilities:
(A) Your prospect buys.
Woohoo! Go hit the gong. You just brought in a whale.
(B) Your prospect objects about something other than price.
Interesting. There still might be a price objection coming, but it wasn’t your prospect’s first thought. This is usually a good sign, as it means your prospect is not blown away by the high price. Proceed with handling objections as usual. Read more about that here (smokescreen objections) and here (real objections).
(C) Your prospect objects about price.
This is what we’re expecting. It makes sense, especially if we offered a price that is above what our prospect is currently paying or was expecting to pay.
But we don’t want to lower our price right away. Instead, we want to start out by handling the price objection as if coming down on our price wasn’t an option.
For this specific example, we don’t want to address the price objection head-on. Instead, we want to “deflect” the objection. I learned this strategy from Jordan Belfort. Read more about it here.
For this case, we want to respond something like, “I hear what you’re saying. Let me ask you this Roger, do you think our VoIP offering will be better than what you have currently?”
And then you want to listen very carefully.
(i) If your prospect says “no,” well, then you have a bigger problem. Because your prospect doesn’t see value in what you’re selling. Maybe your pitch was bad, but that’s a separate issue.
(ii) If your prospect says “yes,” then you want to circle in for the close. Build more value and ask for the sale again at the same price point.
(iii) If your prospect says “yes, but …” then what comes after the “but” will probably be another objection. It will either be a different objection or the same objection (price).
If it’s a different objection, then price might not be the real issue. You’ll need to handle this objection first, before handling the price objection.
If it’s the same objection (price), then price might be the real issue.
You can try deflecting and looping one more time to close at the same price point, but then you want to start addressing the price objection more directly.
Still, don’t come down on your price point yet. Before doing so, you want to get your prospect to tell you the price that they’re willing to pay.
This strategy is similar to Sandler’s “up-front contract.” Its purpose is to avoid surprises (e.g., your prospect having a much smaller budget than you expected). Read more about it here.
Before getting into a price negotiation, up-front contract with a question such as, “For the package we’ve discussed, what price point would you need to be comfortable moving forward today?”
Hopefully your prospect names a price point that’s higher than your lowest offering. If you qualified for budget at the beginning of the encounter, this should always be the case.
From there, it’s finally time to come down on your price. But your work isn’t done yet. Exactly how you present your lower price is vitally important.
It can’t appear too easy, because then it seems fake, like the salesperson who tells you that the discount is going to expire tomorrow, even though you know there will always be a discount.
In other words, you don’t want your prospect to think that all your other customers end up getting the lower price in the end or, worse, that you had the lower price all along but wanted to see if you could get some more money out of your prospect.
If your prospect gets the slightest inkling of either of these feelings, it might end the encounter.
Instead, you want your prospect to believe they’re getting a deal—the highest possible value for the lowest possible price. This intensifies the “anchoring” effect from before.
In some companies, you’ll have to get manager approval to offer a discount or sell a lower package. Even if that’s not the case at your company, I still recommend doing something similar.
You can say, “Okay, can you give me one second, Roger? I’m going to put you on hold and try to figure this out with my manager.”
This creates the perception that you’re really working hard to get your prospect a deal.
Even if you don’t have a manager, act as your own manager. Take your time to prepare your next offering for the prospect. Add and remove features to create the package that fits both the needs and budget of your prospect.
When you get back on the phone, say something like, “Okay Roger, here’s what we can do …”
You might have to do this one or two more times before you reach a price with which your prospect is comfortable, but hopefully this means you’ll be making a sale on the call.
But let’s not forget all the important steps we had to go through to get to this point. We didn’t just lower the price right away. Here’s a summary:
- Start with a price point that’s slightly higher than your prospect’s budget (maintaining your ability to discount and taking advantage of anchoring).
- Handle any non-price objections first.
- Handle the price objection indirectly (using Belfort’s strategies, “deflect” and “loop”).
- Use Sandler’s “up-front contract” to determine what your prospect is willing to pay.
- Handle the price objection directly by coming down on your price (make sure to present the lower price in a way that convinces the prospect they’re getting a deal).
It’s possible for your prospect to buy at any point throughout steps 1-5.
If you start right away with lowering the price and your prospect doesn’t buy, then you’re dead in the water.
But if you use this strategy, you’ll give yourself every possible chance to close the deal before playing your final trump card—offering a lower price.