Every customer has a price range where
they are willing to make a decision without any further thinking. I refer to this as the
Price Tolerance Ratio – also known as the PTR.
Knowing your customer's PTR is critical. I believe it is
one of the major obstacles salespeople fail to comprehend. As a salesperson, when you
don't understand a customer's PTR, at least one of the following results is inevitable:
- You offer a price that does not maximize the profit
potential.
- You get the order but encounter resistance from the customer
that hinders the relationship.
- You encounter resistance that leads to spending too much
time on the selling process and ultimately no order.
Let's look at each of these individually, starting with the
first one where the price offering does not maximize the profit potential.
I start with this one because it is the most common. The
salesperson rarely finds out the price is lower than necessary until long after the sales
is completed – or worse yet, they never find out.
The only way around this is by asking the customer early in
the relationship, before they've expressed any intention to buy, how they determine value
and what their critical needs are. Many times, trying to ask these questions during the
sales transaction itself is too late, unless the customer is experiencing a significant
issue as to why the order must occur.
The reason I say this is because once the customer has
determined they need to buy, they many times become focused on seeing what it will take to
get a lower price. If you, the salesperson, ask them a question about value at this point
in the sales process, the customer may very well use the question against you.
Take the time to ask the customer why the order is
important and what risks they feel they would encounter should they not receive it on
time. Ask them how their order fits into the overall scheme of what they do and what their
customers do (if you're in a B2B environment).
As a salesperson, if you can identify value or risk in
other parts of the supply-chain, you can leverage this information during the sales
process and increase the amount the customer is willing to pay (essentially widening their
PTR).
The key is to find out as much information about the
customer as you possibly can early in the sales process. Also, you need to understand how
critical time is to their process. Obviously, the more critical time is to the customer,
the wider the customer's PTR will be. The impact of time could be reflected in how quickly
they want to order.
By thoroughly understanding the customer's PTR, you will be
able to effectively price your product and/or service. Pricing too low means you leave
profit on the table; pricing too high means you don't get the order. There is no magic
formula. It comes down to your level of knowledge and your confidence.
The second scenario a salesperson may encounter with regard
to PTR is that they get the order, but with resistance that ultimately hinders the
relationship. Resistance is not always a bad thing. I believe strongly that if you don't
encounter some customer resistance from time to time, then you have not truly pushed the
process to the point of being able to maximize profit.
When you encounter resistance, you first have to determine
if the resistance is real or superficial. Many times the customer is merely venting as a
way to assert their control.
The best way to measure if the resistance is real or
superficial is to see if they continue to express their concerns about price on multiple
occasions. If price comes up only once or twice, then you can reasonably assume it is
merely the customer venting. You can overlook it and continue with your sales process,
knowing your level of service and support is going to overcome any pricing perception.
If the customer does carry on regarding pricing, then the
resistance is real and it will slow the sales process. You then can adjust accordingly.
The final reason knowing the PTR is essential is it
prevents you from spending too much time with someone who is nothing more than a customer
from whom you can't make any money.
Early in the prospecting and sales process, you must begin
determining the customer's PTR. The easiest way is by simply asking them what they've been
paying for services in the past and what their expectations have been for the companies
they've been using. If you are not direct with questions like these, you will waste time
chasing customers you ultimately do not want.
Price Tolerance Ratio (PTR) is a new concept. I am pleased
to be one of the first to educate people on this. Since explaining this concept, we've
seen salespeople and companies significantly improve their profitability.
If you want to improve your bottom line, begin now to
identify the Price Tolerance Ratio (PTR) for each of your customers. Waiting until you
close the sale is too late.
Mark Hunter, "The Sales Hunter," www.TheSalesHunter.com, © 2011 |
