If you’ve ever had to deal with pitching to a client, you’ve inevitably come across the problem of “sticker shock”.
For those of you unfamiliar with the term it’s the idea that when a customer sees the price of whatever you’re offering they are taken aback because it’s more expensive than they had anticipated.
I’m not going to get into the whole art and science of pricing in this email because we could be here for a month of Sundays and not really be any better off. I’m also smart enough to acknowledge that I’m not an expert in setting prices, so I won’t insult you by pretending I am – pretend experts are an email for another day… Maybe tomorrow.
Anyway, back to the topic of clients being unpleasantly surprised by the price of your offer.
Last week in my day job I presented to a client for a consulting engagement that they requested a proposal for. The first 80 minutes where we outlined the work we’d undertake and the result we would deliver was incredibly well received by the people in the room. There was a highly engaged conversation and they commented many times about the quality of the thought that went into our offer.
Then came time for the great reveal on the price. Last slide.
I caught the look on the decision maker’s face out of the corner of my eye – it could best be described as slightly taken aback.
My colleague and I held our nerve and proceeded to explain that should they accept our offer, we could pull together a team to complete the consulting engagement starting within the next week.
As someone experienced in this kind of thing the best advice I can give you when you get that type of reaction is to ignore it and press on. Most small business owners in that situation would backpedal and start caving in on price based on a facial expression or some insignificant cue, real or perceived.
Let me tell you, when I was a CIO, I’d mastered that look. Somewhere between shock and abject disgust that almost manifested itself in laughter – going from slightly bemused, to mildly amused. I can say with confidence that 80% of the time, the person pitching me would cave on price purely based on a facial expression. Over the years I would have literally saved millions without having to speak a word.
So fight your urge to respond with weakness.
With this client, we pressed on. We outlined our value proposition and highlighted why we were not only the best choice to perform this engagement, we were the only real choice. We doubled down on ourselves.
Then we stopped talking. This is an important step. Stop talking. There might be an awkward silence or whatever, but don’t keep selling. You’re done. If the client says nothing, ask for their thoughts.
In this situation, when we stopped talking, the client immediately started apologising for his obvious look of shock. He said that the price was higher than he was expecting, but that he understood how we’d gotten there, he said he needed to digest it.
My colleague went for the kill by telling the client that we could see it was slightly higher than they were expecting, but having analysed their requirements, done our numbers, that was the price, however, if they wanted us to cut back on the deliverables and produce a slightly less exhaustive report, then we could probably find some cost savings.
It put the client further on the back foot because now we were saying that if they couldn’t afford the best outcome, then perhaps there was a cheaper, inferior version available. Nobody wants the cheaper, inferior version.
There were a few more pleasant exchanges, I won’t bore you with the details, but we heard today from the client that they’re more or less going to accept our offer with only a minor variation in scope.
As a business owner, you have to figure out what your time and effort are worth, lock that into your brain and stick to it. Your customers and clients want something that you have and they are willing to pay a fair price for it, but I can tell you unequivocally that they will almost always try and negotiate you down. It’s just human nature, it’s part of the dance.
You need to stand strong. This is where having a solid and steady pipeline of leads and opportunities helps you. Having a good flow of new business means you’re not desperate for wins, so you’ll be more willing to hold your ground.
Also, you don’t need to “justify” your price to a potential client. I’ve had rude clients say to me over the years, “How do you justify charging that price?” Easy, because that’s what I want to charge and if you’re not happy with it, best of luck in future endeavours. Never apologise for your prices.
As you can no doubt gather by now, when you’re having these kinds of discussions, it pays to have confidence in what you’re offering. With a day job like mine, that confidence is easy to come by because we get a fair amount of work all the time and we have a rigorous pricing process that we have to go through. In fact, even if we wanted to lower our prices because we’re less confident of winning, we have an entire governance and review process that would stop that from actually happening.
When you run your own small business, you may not have those luxuries that a large corporate has, but that shouldn’t prevent you from having strong governance around your offers. You come up with a pricing framework that you’re comfortable with for your business, apply it to all of your opportunities and then hold yourself responsible for sticking to it. Winning unprofitable work is not good practice.
The last thing I’d say is, don’t undervalue what you do. The easiest thing in the world for a small business owner to do is to try and buy some business by dropping the price, “just this one time”. Resist the urge to do that because it never ends well for you.
You’re in business to be successful, put your offers together with care and diligence, make sure your price aligns with the value you’re providing and then stick to your guns.