Last week we looked at why we need to do a bit of work on our pricing to help insulate the P part of things from the L part of things and come up looking pretty good despite having mucked up the budget and let sales have its way with revenue.

This week, let’s talk about Sales Squirrels and how they can turn your thoughtful price book into a soggy mess of discounts, rebates and freebies, also known as the Pocket Price.

Years ago, I worked with a sales executive who believed that all sales involved a plate of cookies. Not a literal plate of cookies; that would have been far easier. What he had in mind was the assumption that nobody pays list price and, depending on the client, sales offers a number of incentives, or cookies, to close the business.Old Building Sign Hamilton3

In addition to being easier to spell, cookies sound way less horrible than words like “free”, “waived”, “complimentary” and “discount”. But the sound at the end of the deal is the same: it’s the sucking sound that profits make as they are going down the drain.

Whether or not the metaphor of cookies is your thing, the chances are, your Sales Squirrels are walking into their accounts with their cheeks bulging with concessions. The team manager wants free training? No problem. The P-cube dude wants you to deliver it for free? Done! The project manager thinks she can sell it to IT if you’ll just waive the set-up charges? Okey dokey. The finance director says his VP would feel much better if you just knocked 15 points off the whole thing. You got it! And to sweeten the deal for the board, the CFO would love to see free custom reporting for the next five years. Yabba dabba do!

What you end up with is the Pocket Price. That’s the amount of money you actually see after all the deals are cut, but before you pay out commission, COGS and sales expenses. The waterfall on one of these looks a lot like this one from Deloitte:

The problem is that it’s not even a little bit transparent and every order in this scenario becomes a custom order. Which is fine if you sell yachts, or hydro electric dams or things that go to space but doesn’t scale very well for those us selling professional services, software and stuff that mushes up spinach. What we want is something predictable, repeatable and, oh, I don’t know, profitable.

The interesting thing about the cookies, is that they are never about the product, the features or the competition. They are about one person at one point in the buying cycle seeing what they can get away with, what will make it look like they tried to negotiate and what they could, if you blow it, dangle in front of your competition. I’ll bet half the time the Squirrel offers the cookie long before the buyer even thinks they’re hungry.

Yet, when you challenge your Squirrels on pocket prices, the very first thing you are likely to hear goes something like “well it’s not like we’re exactly competitive so if you want me to close deals, I gotta match the street.” Except that nobody actually asked them to match or beat a competitive price. If the only cookie your customers can think to ask for is money flavoured, then your sales team has not been selling on – say it with me– Value.

I think there are three reasons our Squirrels go to the price. First, they don’t really understand, and, hence, don’t really trust the price justification. This applies, incidentally, at both the top and the bottom of the market.

The second is the wildly mixed messages they’ve been getting for years from sales managers, most of which come down to “get the highest price you can, unless of course it’s quarter-end, and in that case, drop your trousers and explain later.” Pocket Price indeed.

The third reason is plain old-fashioned fear. If your squirrels are up against a lower-priced competitor, they are terrified they’ll lose the deal on price. Features and benefits are honourable ways to lose, but to most Squirrels, losing on price is pretty humiliating.

So what do we do? Shooting Squirrels is mean and very messy, especially if your cubicles are the fabric kind. Here are six things marketing can try that doesn’t involve gloves.

First, stop looking at our competitors’ prices. You do it. I do it. We all do it. And then we tell the Squirrels what those prices are. And then while they’re baking cookies to make the price thing go away, we make a slide deck to show them the value of the product. I say we take that right off the battle cards and train instead on a general conversation around price objections.

Second, use your personas and map your sales process in excruciating detail. Then train your Squirrels to leave the cookies in the car and sell the value to each persona in terms they (the persona) understand. The person who wants free training really just wants to understand what they get for the training charge. The free delivery guy would love to hear your plan to make sure everything arrives on time in each location and mostly in one piece. The CFO would much rather tell the board she is going with a premium product because it solves a big problem than the cheapest thing she could find that might make everyone feel a little better. Role-play the heck out of that stuff and you’ll get the Squirrels off the price thing.

If you have senior buy-in on this issue, assign an executive to each key account. This reinforces a value and service statement and not many customers would have the nerve to ask your president for a discount. I would hope most of your Squirrels would have the smarts not to offer one.

Depending on how you qualify your leads, you might consider putting in price acceptance as a criterion. It’s mean, but a Sales Accepted Lead that doesn’t care about price is a whole different conversation if the cookies come out.

I know we keep saying it, but if you really want to create a disincentive to stupid discounts, stop creating stupid incentives. Every time we do another sales contest, quarter-end blitz or Olympic themed spiff, we are more or less telling sales to get out the cookies. If you can figure out an incentive that’s tied to higher selling price or net revenue that’s a different thing all together. In fact, if we can figure out how to tie sales compensation to profitability… well that’s just dreaming, now isn’t it?