by Andrew Milbourn, CEO of Kiss The Fish
One of the most obvious growth strategies for SMEs is to successfully increase prices each year.
In my experience (working with SMEs for over 20 years now), most CEOs budget loosely by looking at costs and then adding whatever they think they can ‘get away with’ on price. This discussion and process are often led by the CEO who relies on his Head of Sales for market intelligence, or worse still in a wider discussion with the whole ‘sales team’. This is quite understandable if the CEO is removed from client contact but it is a fundamentally flawed approach and will lead to underperformance each year.
Remember that any price increase above budget expectation will contribute straight to the bottom line and it can be a big win if you get it right so this is worth spending some time on – it may just be the most stable way to growth for a business.
So why can’t the sales team be trusted?
Well, I speak as a sales head myself and it took me quite a few painful years to come to terms with how to forecast and budget for the potential of a product. Indeed, it was only when I became a consultant and started interviewing a client’s customer base that I realized that most of my clients were undercharging for their products.
The problem is the nature of sales-people (which is well-intentioned by the way) and the negotiation strategies that have permeated most small companies – which is to always say things are too expensive as a starting point (any good buyer knows this).
Salespeople should be a great source of a market’s potential because they are in touch with many people across the market in any given period. The problem is that they have a tendency (as do any other groups of people) to exaggerate the negative factors when trying to recall conversations (negotiations) they have had on price.
The reason for this is that negative events have a greater impact on our brains than positive ones. Psychologists refer to this as the negative bias (also called the negativity bias), and it can have a powerful effect on your behavior, your decisions, and even your relationships. So it may only be that a salesperson has had three tough negotiations in which the buyer wouldn’t agree to the minimum pricing expected (your budget price) in the last year – but those are the conversations they will remember out of the hundreds that have actually taken place. It is no surprise then, that salespeople will talk down price potential even when the vast majority of the marketplace would pay more for the products on sale. Our experience is that in most markets only 10% of the buyers in that market are truly price blockers (putting price as the most important part of their buying process).
The other problem with a price increase strategy is that your sales team may lack the confidence and the skill to deliver your true value proposition.
The good news is that we have an approach for both problems – how to determine the true value and how to inspire the sales team to deliver that potential.
Pricing is crucial to the continued success of your business. If you want to discuss this further, I’m happy to offer you a free consultation on the phone or on Zoom to discuss how you might maximize your business potential for growth.