How Quickly do You Drop Your Pants

How Quickly do You Drop Your Pants:from EyesOnSales.com
Many years ago, in a former life, I called together all my sales managers to discuss an increasing concern I had about an apparent trend - decreasing margins. I mean every CEO understands that commercial success depends on increasing profits (note my emphasis on profit rather than revenue) and reducing costs - don't they?
During the course of that meeting I was presented with a number of reasons why margins were being eroded - competition getting tougher; price wars; increasing commoditization of IT products etc. etc., but nothing that I didn't know already, which actually, was a relief. Anyway, to cut quite a long story a little bit shorter, I issued a new set of ground-rules - that's like an edict, but with a hint of democracy. From that day forth I insisted that all managers would implement a new three-phase negotiation policy, which was something like this...
Ideal outcome - the company makes an excellent profit on the deal, and the client also gains the appropriate amount of value - obviously "win-win" Both parties will most likely want to do business again.
If we cannot achieve an "ideal outcome" then the next best thing is a realistic outcome Here, we are still making a reasonable profit, but the client has negotiated hard, and won some concessions. We are still in "win-win" territory, and both parties are still reasonably happy - maybe they are slightly happier than we are.
Finally, we may be forced to retreat to fallback position This should be our final offer, a point at which we cannot drop beyond in terms of discount or concessions; if we do, we are not making sufficient profit to warrant all the effort and cost of resource necessary to win the deal.
My management team accepted this new official proclamation - well all except one, who argued that he might occasionally need some additional latitude if he felt there was some "strategic marketing value" to be had by taking a hit on the first order(s) I explained as patiently as I could that I referred to this scenario as "Trying to sell me fish still in the sea" In other words, the client/prospect would typically say something like "If you give me an additional 10% discount on the first order, there will be additional business for you in the future"
As I pointed out, if we cave in and give them an additional 10% discount on that first order, why wouldn't they want an additional 10% on every order? When you give something to someone, they don't much like it when you try to take it back.
I was insistent that my new policy should be adhered to, but suggested I was open to discuss any exceptional deals that might warrant us "dropping our pants a little further" I also hinted at penalties for any salesperson breaking the rules, and could they please try and imagine that they were giving away their own money and not the company's.
You have probably guessed what is coming next: Within three months, my "rebellious" manager did uncover and close a sizable opportunity, and he did go outside my guidelines - without reference to me, and without my permission. Suffice to say I was extremely disappointed - if "disappointed" adequately describes steam hissing out of one's ears. He had given away an extra £25.000 worth of margin.
I asked to see him immediately, and we painstakingly went through the deal with a fine tooth-comb - me pointing out some alternative ways he could have closed and still retain the lost margin, him lamely fighting his corner: I reminded him that I had asked everyone to think twice before giving away even 1% of extra margin, and to imagine they were opening up their own wallet. He agreed that was an excellent deterrent, so I said "Good, because you owe the company £25k, how do you propose to repay us?" Unsurprisingly, he went a very pale shade of white, but just managed to stay in his chair.
I won't go into all of the details, but I arranged for HR to draw up a letter of agreement with him to repay £2000 per month - and I kept up the ruse right up until the last day of the month - pay day - but he learnt a very valuable lesson, and suffice to say, from that day on, he and his team defended margin as if they were defending their livelihoods - which they may well have been!
What about you, are you really a genuine defender of your company's margins, or do you simply drop your pants whenever asked to?
Imagine adding just 1% of additional margin to every deal you have done this year? It's probably a lot of money isn't it?
Negotiation isn't an advanced skill; it is a pre-requisite skill for anyone thinking about being successful in a front-line sales role today.
If you wish to hone your skills, you may enjoy my latest updated EBook - "How to Negotiate - from Open to Close" - it's free, just send me an email to jf@jonathanfarrington.com