The Give and Take of Negotiating Price

Feb. 1, 2007
If your business mantra is "do whatever it takes to get the job," you might be adopting a strategy that could send you right out of business.

If your business mantra is "do whatever it takes to get the job," you might be adopting a strategy that could send you right out of business. That's especially true when it comes to pricing — and in particular when it comes to adjusting your price during a bidding situation.

Many a hard-working contractor has suffered the repercussions of getting more business than he can afford. And I mean that literally. He becomes known as someone who’s willing to cut his price to get the job. But the lower his prices, the smaller the margin, and the harder he has to work to keep up. In a system like that, it’s tough enough to just break even, and sometimes, he even loses money on a call.

Be careful of not validating the lower price.

When you’re among other bidders, your first thought is to adjust pricing. It only makes sense: The buyer is obviously shopping, and this typically equates to "the lowest price wins."

But if you just cut the price without a reduction in product or service, your prospect can only assume that your initial price was a rip-off. This is not a good opinion to encourage.

Whenever you give something away, make sure you get something in return. Always tie a string: "I'll do this if you do that." Otherwise, you're inviting the negotiator to ask you for more.

Before you can begin your negotiation, you need to know what the issue is. So, at a bidding scenario, you must instantly determine: Is price the issue? Or is it value? Ask or you’ll never know.

When the issue is value:

Be able to spell out the benefits of doing business with your company. By doing so, you're helping your customer organize his thoughts so he can make the right decision.

Restate why yours is best by giving credible benefits over technical features. Your prospect may say, “But I don’t need the ”, and you say, “Great, I love talking with someone who knows what he wants. If I can remove that feature and sell it to you at a discount, would you want to go ahead and make a decision?”

This is the moment of truth. If you can accept the condition, you’ve sold a system.

When the issue is price:

When customers reject your offer based on price, they’re only taking money into consideration. There's a lot more to the purchase, and you've got to make that clear for the customer. You've got to believe in your own mind, "For what we do, we're the cheapest in town."

Substantiate your reason. "I understand that you want the lowest price on your job — don’t we all! I’m willing to give you the best in terms of quality, service, and price . . . but I need to know what it’ll take to earn your business, and get you what you really want." Now be quiet.

The prospect will be forced to state the price and what he expects. Your job is to figure the concessions to make it work.

Remember, in the absence of value, every price will be perceived as being too high. The result will be "fight or flight." Your prospects will either feel the price is too high and prepare for negotiated combat, or simply feel that the price is outlandish and prepare to leave! (Well, actually, they start preparing for you to leave — which is never a good thing.)

Adams Hudson is president of Hudson, Ink, a marketing firm for contractors. Call 800/489-9099 to request the free report, "How to Double Your HVAC Sales in 90 Days," written to improve presentation skills and increase sales closes. For a free marketing newsletter, contractors can fax their letterhead with the request to 334/262-1115 or email [email protected]. Check for other free marketing articles and reports.