Fatal Mistakes of Cutting Your Price

Everyone has had the experience of wanted a job so badly that they make the most elementary of mistakes. This is, in part, what keeps management consultants in business. I just experienced this first-hand and it moved me to write this post. (I won’t disclose the contractor). They had sent out a bid for some home plumbing work. The bid was over $750 which was significantly more than I had expected. When they followed up I told them that their bid seemed out of my price range. Then came their error–they quickly responded, “What if I can get it down below $600? I am playing with the numbers and I can shave off some of the time. I always figure extra time in for the “uh-oh” type moments.” Really–that is what they replied. So I guess they just were going to screw me with the original bid! I will NEVER use them again for anything.

So what do you do when you want a job and price seems the issue? Rule #1: NEVER LOWER YOUR PRICE WITHOUT TAKING SOMETHING OFF THE TABLE! Doing so simply makes you a whore. His mistake came up front–his bid should have clearly stated the scope of work. Then he could have lowered his price by “taking something off the table.” For example: the bid includes a 5-year warranty of the parts and labor. He could justify lowering the price by telling me that if he took the warranty down to 90-days the price would be less. That maintains the integrity of his first bid (and of his company!) Rule #2: See Rule #1. You cannot just dicker price with a client and maintain your integrity. If one time McDonalds allowed you to get a Big Mac for 50 cents all you would feel is ripped off for every other Big Mac you have ever (or will ever) bought.

In this case, if he really wanted (needed) the job and since he didn’t have a “fall back” he should have said, “I don’t know if we bid your job properly–let me take another look at different ways we could do it and see if there is a less expensive option.”

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How to Sell on Value Rather Than Price

Don’t want to compromise on price? Experts explain how to stay competitive based on the value of your product or service to consumers.

By Tim Donnelly | Jul 20, 2011

In a famous video clip from Penn and Teller’s Showtime hidden camera show, diners are lured to an upscale restaurant branded as the world’s first boutique vendor of bottled water. A water steward presents each table with a menu discussing the finer qualities of water purportedly shipped in from mountains and streams all over the world, some of which cost as much as $8 a bottle.

Of course, the joke is on the customers because all the water actually came from the garden hose out back, but the message was clear: People are willing to pay more for a product if they think it gives them a truly special or significant value—and if you present it to them in just the right way.

Your company is probably selling a stuff that’s a lot more valuable than fancied-up hose water. Selling on value, not price, involves a balance of confidence, personal rapport, and doing your homework, and it’s become more difficult as technology gives consumers greater access to price information and competitors. We’ve talked with veterans of selling their value, and they share some tips on how to make your products stand out in a low-cost world.

Choose Your Targets Wisely

New companies often make one fatal mistake that forces them to compromise on price, says Barry Farber, a business consultant who has worked with American Airlines, AT&T and BMW, and author of more than 11 books on sales. Companies don’t narrow their target market, and don’t understand their products likely aren’t for everyone.

Farber says to do this by researching the potential client to see if they are a good candidate to meet your price needs. This saves you from wasting time talking to people who only want the cheapest deal.

“Some sales people, they just make sure the prospect is breathing and then they dump all this info on them,” he says. “That’s not a good return on your investment of your time. Sales reps that don’t have that kind of aggressive focus, if they lose [the deal], their month is dead, their year is dead.”

Nat Kausik, CEO of Trubates, an online marketplace for adjustable local deals, says his company knows that many consumers are familiar with the nature of value-based pricing, especially after dealing with fluctuating airplane fares. The right customers will be receptive to hearing why they should pay more for a certain product over another: That’s why his site lets users review an offer after they redeem it, and makes the review available to other users.

“Consumers, they’re very sophisticated,” he says. “They understand how to explore price for value.”

About one-third of consumers are purely hung up on price, while the other two-thirds are open to at least hearing your argument, says Tom Reilly, an author and value-based shopping expert. Innovators and early adopters are more likely to shell out the extra money, he says.

“Be crystal clear whom the market segment is that you’re designing for,” he says.

Leverage Your Strengths and Experience

Once you’re in the sales meeting with a potential client, you had better be ready to stiffen your backbone and wield the full weight of your company’s strengths. This comes largely from sales skills, but you can prepare your team by educating them on how your company stands out.

“It’s almost embarrassing at times the way people don’t understand all the ways they bring value,” Reilly says.

You should also be telling the potential client or customers about the history of the company, which helps build confidence in the product. Build up your success stories by documenting testimonials from past successes and showing them off to future opportunities.

“Be able to successfully use your customers as your sales people,” Farber says.

Orwak, a company that supplies waste compactors, baling systems, and other recycling equipment, emphasizes its value thanks to its trans-continental reach. Based in Europe, the company has seen recycling grow leaps and bounds ahead of the United States over the past 40 years. Its sales team pitches its products as a way to help companies stay ahead of the recycling curve.

“We try to sell it as, ‘Hey we’ve been there, done that. Let’s look at Europe, that’s the future of America,'” says Mark Lanning, Orwak’s national sales manager. “We’re going to give you a little peek at the future from our experience.”

Know That Confidence is Key

When you’re highlighting the value of a product over cheaper competitors, you shouldn’t be vacillating on price or negotiating. Reilly says to avoid words and phrases that suggest flexibility, things like saying “generally, we charge” or “your price.”

“The time not to show a lack of conviction is when you’re asking people for money,” he says.

Drop the price without hesitation and without getting defensive, he says.

It is the time, however, to mention the advantages you bring to market: global sourcing, logistic support programs and other things that go beyond the features of a single product or service, Reilly says.

You can be confident without dragging your competitors through the dirt, Farber says. Highlight why your product’s value is worth their consideration over lower-price options.

“The most critical thing an entrepreneur needs more than anything else is confidence,” he says. “If that’s missing, I don’t care if you have a plan and all that stuff, you’re dead in the water. You can lose your edge right away, and selling value becomes 10 times more difficult.”

Emphasize Your Customer Service

The toughest job selling value to customers is getting them to picture the full depth and breadth of everything your company has to offer.

Lanning says his company likes to talk about more than just the product, as comparing balers can feel like just comparing one hunk of steel to another. Customers now expect a quick response time, an ease of use and the feeling that you care about them.

“It’s easier to paint the picture about service than a hard object,” he says.

Farber advises people to foucs on personal touches and developing a rapport with the client by getting to know their needs and business background.

“I’m a big believer of handwritten thank you notes,” he says.

Often the customers who are obsessed with finding the lowest price turn into the biggest headaches, he says. But the customers that see your value understand you’ll be there to provide customer service.

Make sure to keep providing good service throughout the lifespan of the customer, which will let you pile up those customer testimonials you can use to show future clients why you provide the right value.

“Value is always long term,” Reilly says. “Price is short term.”

Reprinted from INC MAGAZINE

Material Costs

There are numerous factors that determine the company’s material costs.[1] They include:

1. Price negotiation;

2. term negotiation;

3. utilization of discounts offered;

4. systems for assuring that company receives what was ordered at the price that was negotiated;

5. assuring credit for damaged goods or short deliveries;

6. controls that we are paying the negotiated price–once;

7. establishing appropriate inventory levels and maintaining such;

8. controlling obsolescence in inventory and damage in storage;

9. controlling theft;

10. freight negotiation;

11. maintaining adequate inventory to assure ability to fill orders;

12. terms charged;

13. same day billing;

14. And collections.

[1] As the monitor of the material costs is a percentage of revenues, all of these factors can be correct and the problem can fall in pricing. A Company cannot have control of material costs if you have a random system of pricing or if a company fails to have systems of up-dating pricing based upon the doctrine of true costs.



No Sales and Marketing plan can be effective without incorporating pricing schemes. Every job incorporates three components—the cost of the job, the job’s contribution to profit and the job’s contribution to overhead. Since the company’s overhead is fixed, sales above the break even do not require a contribution to overhead. With effective sales projections and control of the break even, the company can know how much and how often it can “sharpen the pencil.” Market penetration can be generating while maintaining pre-determined profit levels. There must be a pricing plan designed to “win” the game.


Estimating is a sales function. Sales and Marketing brings to estimating a pre-determined amount of appropriate bid opportunities.[1] The responsibility of estimating is to accurately determine what the companies direct cost will be of each potential project (take-off). It is not the job of an estimator to determine the Price. Pricing is done according to the Sales Plan and incorporates the break even of the company and other company objectives. The estimator is held accountable for the accuracy of the bid—which creates the budget for the field. The job budget is what the field must focus upon—not the price. All incentives have to be based upon the budget.

Although the market and your competitors control pricing, the market or your competitors cannot control your pricing strategy. Pricing must incorporate your real costs and pricing strategies based upon break even and company objectives. Pricing is an entirely separate function from the take off which is easily delegated.

[1] This is how you hold Sales and Marketing accountable. The company plan sets the standards as to what an appropriate bid opportunity is and how many opportunities per week/month/quarter or whatever they should generate. This of course is based upon the bid to award ratio.

Sales and Marketing

We define the difference between Sales and Marketing as follows: Marketing generates leads, Sales converts the leads to sales. Both of these functions are required in any organization. Your company must generate leads. It could be for the purpose of generating relationships for negotiated work or it may be merely identifying bid opportunities. Once you have leads, you must convert them to sales. This can involve pricing (or the estimating function), relationships, and numerous other functions.  No Sales and Marketing plan can be effective without incorporating pricing schemes. Every job incorporates three components—the cost of the job, the job’s contribution to profit and the job’s contribution to overhead. Since the company’s overhead is fixed, sales above the break even do not require a contribution to overhead. With effective sales projections and control of the break even, the company can know how much and how often it can “sharpen the pencil.” Market penetration can be generating while maintaining pre-determined profit levels. There must be a sales plan designed to “win” the game. Here it is left to chance.

An effective Sales and Marketing plan is an extension of the Strategic Plan. First you must identify your company’s Unique Selling Proposal—why people should buy from you instead of your competitor. Then you must identify your targeted market and determine how you are going to get your message to them. The business requires a certain level of sales in order for the business to generate the results that the owner needs.  Your sales management is then the accomplishment of that result.

The sales functions consist of lead generation (marketing), lead qualification, relationship building and closing. A lower level of employee than the person required to qualify the leads can do lead generation. A lower level of employee than the person who builds the relationship or closes can qualify leads.  The sales function has numerous components but basically there are four–lead generation, lead qualification, technical knowledge and closing. Each function requires a different level of expertise. In most companies they hire a high paid person who is capable of performing each function. This results in a significant lack of productivity and creates a very undesirable situation in which the sales person can hold you hostage. Lead generation is a low-paid position—it should not be performed by you high-priced person. Lead qualification is only slightly more involved. An effective sales structure takes your strong closers (who are highly paid) and puts them in front of as many qualified leads per day as possible. It also relieves them of the burden of having complete technical knowledge since the technocrats in the organization supplement them. With this type of sales structure, The owner bonds to the company rather than a sales person, which is a much “healthier” result.