Semi Start-Up - Pricing Negotiation

I'd love to get your feedback on the following:

After several months of talking with the directors of this firm, I am near to closing the deal.

Overall, they love our solution and want to move forward, yet they have asked us for a cheaper price. My belief is that they know that we are a very young and small company (hence why I use semi-start up in the title. we have been around for 2 years and have 70 customers) and are playing that to their advantage.

I rarely discount price, especially given the value we are offering them in this particular case. But it's always good to get feedback from people who have been through this many times before. This can be a really good account for us for strategic reasons so I am trying hard to not to let this deal slip.

I will meet with them in a couple of days. I plan to ask them what they had in mind, in terms of a pricing discount. I guess then I will know which card to play.

Some ideas I have are offering them a 10% discount, if they signed that same day/week and paid us the remainder 90% up front.

Another idea was to throw in implementation and training services for free (right now we pretty much do it for free anyways, given that we are in the "customer development" process.

Any other ideas/suggestions?

Thank you all kindly,

-Danny

Danny - it's hard to judge the sense of things not being in the discussions, but for what it's worth, my perspective is that you may be approaching this from the wrong angle.

You say "Overall, they love our solution and want to move forward, yet they have asked us for a cheaper price ". As Jimg notes, everyone is after a lower price, but that isn't a valid reason to give them one.

I would focus on the value you are bringing to their organisation. If there is no lower priced equivalent on the market, and if your product is going to bring them substantial value (i.e., through cost savings, higher profits, all-round easier lives, etc.), then they have two alternatives: pay what you are asking or go without. Given the strategic importance of this deal, you have to weigh up the likelihood that they'll take the latter course of action.

This doesn't mean you sit back waiting for the customer(s) to cave in. I believe you have to help them build their business case in their minds - demonstrate to them the money they will save/new sales they will bring in/etc. People want to feel that they are getting good value for money, and this isn't the same thing as getting a decent discount. (My sense here is 10% is peanuts to them, but less so to you, so by opening up the discount discussion you may make a rod for your own back - they may have 30% in mind, you're not prepared to go above 15% - you both end up having to walk away from the deal in order to save face.)

(NB Of course, if there are equivalent products out there, it helps if you have established a sound relationship with them - people would naturally rather buy from someone they trust and like than someone they don't.)

On a related point, I would also think twice about your approach to implementation and training services. I myself am guilty of giving away consulting effort, but I'm still in the first six months of my latest business and trying to establish my name. After two years, although I understand the point about customer development (same here), I think you should put some value on your implementation and training. If you give it away, customers perceive that it is a) low value and b) in never-ending supply. Unless you want to be in the consulting business, you should make it expensive for your customers to use too much of your time. You can by all means provide the customer with a certain amount of consulting in the price, but my point is that you should put a price on it and make it clear that there is a cost somewhere in the equation.

Coming back to your meeting in a couple of days, let me share with you the best piece of sales advice I was given as a young entrepreneur: "Shut up and Sell!".

Hope you get the deal!

I had to go through the same hand-wringing with 10 different customers before I finally got emotionally comfortable holding a hard line on pricing.

Be firm. They've known your pricing from the start, right? They got all the way to this point knowing full well whether or not it fits in their budget, right? And all of a sudden they need a discount? No.

The biggest give-away is when the person asking for the discount is the Accounts Payable Guy -- the bulldog they sick on you to try to squeeze out a deal. That guy has no power, though he'll claim he can nix the deal. Of course he can't.

The only suggestion I agree with is discounting for early payment because that does have tangible value to your cash flow. However the only way is prepayment, not early payment. That is, if they're willing to pay before they receive the services or product, it normal and sensible to provide a 10% discount on that payment.

But no more than that, and only if you get something in return.

Give them free services only if you think your services are worthless.

Well, it seems that everyone these days wants a discount, so unfortunately I don't think this is a unique condition.

How big of an organization are we talking about? Many times larger corporations can talk about signing with a early pay clause, but rarely do they deliver the cash within the discount time (too many signatures to get though).

I do think that you can use the training and implementation fees as levers - but make sure that there are limits (geographic, number of attendees, number of sessions) otherwise the costs could grow out of control. Re: Implementation - point out the number of hours man hours needed to perform this from your side, and make sure that what your are integrating with is the primary production system and not a "proof of concept" system.

Good luck!

Be clear what your objective is. How desperately do you need the sale and how many options do they have? What is an acceptable price to you? As a young company, you want to get some profitable sales through the door and get on with growing the company. So don't be greedy but equally don't sell out...