The law of pricing

building sales rick davis

You will never know the joy, power, and satisfaction of holding your price and winning a sale until you’ve held your price and lost one. This sentence is one I have repeated more than a few hundred times at seminars and during private coaching sessions with salespeople. It’s not a theory; it’s a law! Many salespeople go through entire careers feeling victimized by the casual negotiations of buyers. What do I mean by “casual negotiations?” I mean to say that buyers are accustomed to testing the waters because we practically ask them to.

We’ve engaged in a scripted conversation as common as “How are you? Fine, and you?” or “Can I help you? No thanks, just looking.” The buyer asks if the salesperson can do a little better and the common response is, “Let me see what I can do.” I call it the “hero’s response” because the salesperson wants to prove his or her capabilities to the buyer. They want to earn the buyer’s loyalty by being the hero who gets buyers exactly what they want.

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Several tacit problems are created when the buyer gets that single point. The buyer wonders why the best price wasn’t given up front, thus damaging the credibility of the salesperson. A new precedent is set, and the price is never really a price, but instead a starting point. Another very large problem is that the single point is not 1% of the sale; it’s 15-33% of the profit!

The biggest problem? Buyers wonder if they should have gotten two points; the reduced price actually leaves them in an uncomfortable position rather than relieving them. That’s right! The only way your buyers know if they got your best price is when you tell them. Modern theories on behavioral economics, by Nobel Prize winners Richard Thaler in his book “Misbehaving,” and Daniel Kahneman in his book “Thinking Fast and Slow,” teach us that humans are not robotically rational buyers. In fact, they have determined quite the opposite and one role of selling is to put the buyers’ minds at ease.

I would take their theses a step further by asserting that salespeople are even less rational. The intense desire for a sale tinged with the slightest resistance from a buyer causes deep angst. As a veteran salesperson, I can assure you that this angst never goes away. The only thing we can do is try to recognize and control it. This means avoiding the persistent urge to lower our prices at the first sign of resistance.

Nobel Prizes are not likely in my future, but at least I can give you some suggestions on coping with the ubiquitous request for a lower price.

  1. Tell the buyer you’re giving them the best price up front. That’s right! Let buyers know before you have even done the takeoff that they will receive your best It’s a pre-emptive move and one that should inspire confidence.
  2. Eliminate the word “bid” from your sales Stop bidding and quoting and start proposing. This means recognizing your offer is much greater than a price to com- pare against other vendors. You are delivering an offer.
  3. Sell profit, not A lot of factors go into profitability decisions. On time deliveries in full (OTIF) reduce operational costs. Selling more competently raises margins for builders and reduces interest expenses with lenders. A solid subcontracting referral helps your client run more efficiently. A homeowner lead you generate enables you the luxury of holding your price because of the profitable sale you provide a client. It’s not the price motive that inspires astute buyers; it’s the profit motive.

These tactical tips should help you overcome the urge  to lower your price. In the end, it’s a shift in mindset that helps a salesperson raise profit margins. You will never know the joy, power and satisfaction of holding your price and winning a sale until you lose one. The only way to get your asking price is to ask and hold firm. It’s a law of selling. Take a risk and see what happens; it’s a rite of passage in the profession of selling.

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