Sometimes here at PricingBrew, we bring up a question that has an easy answer. And “are you losing margin because of salespeople? ” is one of those questions.
Easy answer: Of course, you are.
Whenever salespeople are involved in the sales process, their actions will have a direct impact on whether you close sales and the prices that customers pay. Naturally, that means your sales team may allow some margin to fall through the cracks—and they may even derail some of your pricing initiative. So for about 100% of B2B pricing teams, the sales team is leading to margin erosion.
But the easy answer isn’t the whole answer.
Blaming the salespeople for your margin problems isn’t going to help you solve your margin problems. More importantly, it doesn’t address the core of the issue.
Remember, the salesperson’s negotiation with the customer is just the last step of a very long pricing process. If something is going wrong at this stage, it is likely the result of missteps that happened earlier on. If you can fix those early mistakes, you might be able to stop the salespeople from eroding your margins—or at least reduce the frequency of the problem.
In some ways, investigating pricing problems is a little like investigating an airplane crash. The obvious cause of a crash might be that the plane ran out of fuel. But that answer doesn’t address the root of the problem.
To get to the root, you have to ask why the plane ran out of fuel. Maybe someone miscalculated the amount of fuel the plane would need for its flight. Maybe the ground crew didn’t load the correct amount of fuel. Maybe the fuel gauge was broken. Maybe stronger-than-expected headwinds caused the plan to use more fuel than anticipated. Maybe the pilots both passed out and the plane kept going on autopilot until the fuel was exhausted. Or maybe the pilot was really tired and wasn’t paying attention.
Even these answers might not get you to the true root problem. You might need to ask why the fuel gauge was broken or why the pilot was tired.
Eventually, however, you’ll arrive at a root cause that you can address. For example, the airline might decide to step up its maintenance schedule or give its pilots longer breaks between flights. Steps like these might not completely eliminate plane crashes, but they can help prevent future crashes due to the same cause.
In much the same way, you need to get to the root cause that is leading salespeople to offer lower prices than they should. Maybe you have a problem with your segmentation model. Maybe your customers (and/or your salespeople) don’t understand your differential value. Maybe your salespeople need better negotiation training.
We have a couple of resources that can help you with this process. The Pricing Practitioner’s Primer on B2B Sales helps you understand more about the sales process so that you can better pinpoint where things might be going awry. Exploring the Root-Cause of Pricing Problems tells the stories of seven other cases where pricing teams had to find—and fix—the true source of their margin erosion. And How to Prevent Margin Meltdowns in the Field offers a guide to interacting with the sales team and encouraging them to price better—without making enemies.
It’s tempting to fall into the trap of blaming the sales team for your pricing problems. But it’s far more effective to find and address the root causes.
The Pricing Practitioner's Primer on B2B Sales
To be most effective in B2B environments, pricing professionals need to learn as much as they can about their sales function. In this on-demand webinar, learn more about aspects of sales people and processes that can affect pricing performance.
Exploring the Root-Causes of Pricing Problems
An educational case study collection exploring seven instances where further investigation revealed that supposed pricing problems weren't really pricing problems after all.
How to Prevent Margin Meltdowns in the Field
When your salespeople adopt better pricing and discounting habits, your strategies can become much more powerful than they were on paper. In this tutorial, learn seven real-world strategies and tactics for getting B2B salespeople to price and discount more effectively.