When it comes to negotiation, all sales people are familiar with the term ‘walk away point’, but how many ever really walk away from a deal? In this post I’ll be exploring whether or not there really are times when you should walk away from a sale and what you can do to prevent finding yourself in that situation in the first place.
In my opinion, there are only two situations in which I would suggest it is right to walk away from a deal:
- If you cannot provide real value for your customer– There may be times when your product/service just cannot provide a complete solution for your customer, whilst a competitor can. Whilst you should always look for alternative solutions, which provide even greater value for your customer, you may sometimes just have to admit defeat. Although this may sound illogical, there are real benefits to walking away here. Firstly, it builds credibility and heightens your customer’s trust in you for future opportunities. Secondly, it avoids reputational damage further down the line, caused as a result of selling in an inefficient solution.
- If the Customer wants too much and offers too little in return – Any sale should provide gain for both – if you walk away from a ‘win’ feeling beaten up, you’ve not really won at all. Knowing in advance what you have to negotiate with and how far you’re prepared to go will prevent this. More on this later.
Step 1 – Align Sales Processes with Organisational Goals
A common frustration I hear from business leaders is that their sales people are giving away too much margin, either through discounting, or by throwing in additional products/services/support at no extra cost. Upon closer examination, what I almost always find is that those sales people are rewarded for sales and not for margin. Many organisations operate reward and incentive schemes which actually encourage their sales people to win the deal, regardless of the cost to the organisation and then complain when their margin gets increasingly smaller. Sales people cannot be expected to ‘walk away’ if their reward comes from closing the deal, regardless of how much margin they have to give away in the process.
Organisations need to ensure that sales processes and reward schemes are aligned with organisational goals if they want to hold on to that all important margin.
Step 2 – Avoid Discounting by Building Value
It is not always the case that sales people discount because they’re rewarded for doing so, often it is because they lack the confidence and skill to negotiate effectively. If you passionately believe that your product/service will deliver real value for your customer, then you can passionately defend its cost BUT ONLY if you have demonstrated that value to your customer. Buyers do not always go for the cheapest option, they go for the option which will bring them the greatest return. Think of a situation where you paid more for a product/service that you knew you could get cheaper elsewhere, it was most probably because you could see additional value.
The earlier in the sales process you can demonstrate value, the less likely you will be to find yourself in a difficult negotiation. If and when you do reach the point of negotiation, you’ll be more confident in your position and therefore more able to hold on to your margin.
Step 3 – Know your ‘walk-away point’
Let’s first consider what a buyer might attempt to negotiate with:
- Price, ie; another supplier is cheaper – If cost is their only concern, why have they not just gone with the cheapest supplier? Yes, perhaps they’re trying to play you off against one another, but it might also be that they recognise your solution brings greater value, but they want it at the cost of the less superior solution. Increased value has increased cost and your buyer accepts that, but we all want the best product/service at the lowest possible cost, so they’re always going to try and get the lowest price they can, they’re just doing their job!
- Features/Benefits, ie; your product/solution does not have a particular feature or benefit that a competitor’s does – Now let’s be clear, objections should not be entering negotiations. Objections should be identified and addressed early in the sales process. If your solution is not as strong as a competitor’s in a particular area, then you should have identified area/s where your solution is better and the increased value that brings. That way, should a buyer try to raise this in negotiations, you can confidently defend your position.
- Lead time, ie; your solution has a greater lead time than a competitors – You need to establish how important this really is to your customer (as with all objections, this should have already been addressed early in the sales process, but this can be a more difficult element to predict, so may arise in negotiations). If they cannot wait, they wouldn’t even be negotiating, but would have been forced to go with the shorter lead time option. If your solution brings the greatest value and your customer is clear on this and has no genuine need for a faster solution, they’ll wait.
In determining your walk-away point you should first consider your buyer’s position. What other options do they have? How do those options stand up against the one you are offering? Then you must consider what options you have. Never just discount without asking for something in return, instead consider in advance what your customer could give you in exchange, for example, you might ask that you use the application to create a case study for your organisation.
My advice is therefore NOT that you should never discount, but instead that you should build and demonstrate real value early on in the sales process to strengthen your negotiating position and plan ahead of your negotiations, considering how you’re prepared to give and in exchange for what.