Price Negotiation

What is Price Negotiation?

Price negotiation is the step in the sales process where two or more parties discuss the price of a product, service, or contract. A key component of commercial transactions, it’s used whenever a buyer disagrees with the seller’s asking price or believes there is room for adjustment.

Factors that influence pricing negotiations include:

• Sales volume
• Opportunity for a long-term relationship
• Market conditions
• Perceived value
• Seasonality
• Competition

The goal of negotiation is to reach an agreement that all parties are happy with. The ideal end result balances the seller’s need to turn a profit and the buyer’s desire to get the best possible deal.

Successful negotiators have a combination of communication, persuasion, and strategic thinking skills. They also thoroughly understand current and long-term market dynamics and their product’s value proposition.

Synonyms

• Bargaining
• Haggling
• Price mediation
• Sales negotiation

Importance of Negotiating Prices with Customers

It all comes down to two words: closing deals.

Simply put, being negotiable on pricing means being open to finding a solution that works for both you and your buyers. You obviously don’t want to take every deal at all costs, but there are several benefits to successful price negotiations in complex B2B sales:

• Strengthened customer relationships
• Higher likelihood of upselling and cross-selling
• Better sales and revenue figures
• Healthier cash flow
• Increased sales velocity
• Lower customer acquisition cost (CAC)
• Higher quota attainment from your sales team

Whether or not you can “afford to lose” customers, willingness to come down on the price makes it a lot easier for them to say “yes” and ultimately make a purchase.

In a lot of cases, the intricate nature of B2B deals practically requires negotiation, anyways. Any time a custom solution is involved, you’re ultimately calculating the end cost specifically for that customer. If you can boost sales velocity while maintaining profitability, it’s often worth the margin hit (within reason, of course).

10 Price Negotiation Strategies

RAIN Group studied 713 buyers and sellers in a global study. Among its key findings: the #1 factor separating top sellers from the rest of the pack is understanding leverage on each side of the negotiation. 

Other sales insights from Imparta found that poor pricing negotiation led to more than 5% of the total potential price being left on the table. In other words, a company operating at a 20% profit could make a ~25% improvement to its margins simply by improving its sales team’s negotiation skills.

Ultimately, this all comes down to preparation, which is why it’s so important to develop a negotiation strategy.

Here are ten of the most effective ways to successfully negotiate a sale price:

1. Anchoring

Anchoring is one of the most common types of psychological pricing. Ecom sellers and retailers use it to make their prices look more appealing, but the concept also works quite well for price negotiations in B2B sales.

Basically, you set a higher price point right off the bat, with full knowledge you’ll bring it down if they challenge it. Once they see that high asking price, they’re already primed to think that’s the “true cost.”

Since it’s the first number they see, they use it as a reference point (i.e., “anchor”). So, every price reduction thereafter seems more reasonable by comparison.

2. Bundling

Product bundling is the practice of combining multiple items or services into one package. It’s a well-known and effective price negotiation tactic because it increases the overall perceived value of your offering.

There are a few other benefits to it:

• It increases average deal size/order value
• If the bundled products are complementary, it keeps customers from buying one or more items separately from another supplier
• It makes your products less directly comparable to competitors

By offering more value for less proportionally, you’re making customers more likely to agree to a higher overall selling price. To build urgency, you could even put a time limit on the bundle deal.

3. Discounts and Incentives

There are tons of different ways you can offer customers discounts or incentivize a purchase.

• Limited-time offers
• Price breaks
• Seasonal deals
• Perks like free shipping or exclusive access to certain features

Whatever tactic you use, the principle behind them is simple: give customers something extra, and they’re more likely to pay your price.

Price breaks (i.e., volume discounts) work well for wholesalers, distributors, and manufacturers that want to encourage higher-value orders from their buyers. Seasonal and time-based deals are better for driving a customer toward a purchase decision.

4. Building Relationships

Customers who trust you or know you personally are much less likely to haggle you. This could either be because they already feel they’re getting a good deal, or simply out of respect.

Either way, relationship building is crucial for professional salespeople. Especially when you’re selling big-ticket items (e.g., cars, homes, solar, enterprise software), it’s harder to get a deal done if you don’t truly understand their needs and find common ground with them.

To get started on the right foot, sales reps use a qualification framework like MEDDIC. Throughout the sales process, they take a consultative selling approach to connect buyers with solutions they’ll actually benefit most from (as opposed to just trying to close the sale).

Throughout the sales cycle, making concessions (small exchanges of value, like a free consultation) gives you opportunities to connect with them. If they’re satisfied with their experience, it’ll guide them through the purchase funnel much more quickly. As they see the value, price may become less of a factor.

5. Silence and Patience

Sometimes, less is more. If you think your prospect is more interested in the deal than they’re letting on, giving them the impression that you’re not too worried about losing the sale will give you a bit of a leg up in the negotiation process.

Skilled negotiators know buyers can smell commission breath from a mile away. They won’t want to pay more than they have to, and they especially won’t if it feels like you’re just trying to line your pockets.

It’s also worth mentioning many of your buyers are willing to pay more than they let on. In the aforementioned RAIN Group benchmarking report, the vast majority of buyers indicated sellers caved in negotiations to close the deal faster.

Note: “Silence” is not to be confused with being too passive. You should still be assertive in your responses, practice active listening, and move the conversation forward. Just don’t be overzealous in your sales communication.

6. Value-Based Selling

In value-based selling, sales reps focus on highlighting the value of their solution as opposed to getting buyers to focus solely on price.

Many sales teams set up surveys, customer interviews, or even just do some research to find out what motivates their customers most when it comes to buying. This helps them shape a clear narrative about why your product/service is worth more than competitors’.

This also works well in tandem with the anchoring technique. You set a higher starting price, then use value-based selling to show them why it’s worth that much.

7. Knowing Your Competitive Environment

Not every buyer will be completely educated on what the buying landscape looks like. But sellers should behave as though everyone in their pipeline is a seasoned vet.

Be aware of:

• Current market dynamics
• Cyclical trends (e.g., low- and high-demand periods)
• How many alternatives there are
• What competitors are offering, and for how much

If your buyers aren’t well-versed in the space, you can use this knowledge to justify your asking price and demonstrate your expertise. If they are, you’ve earned their trust and found things to relate to them on.

8. Presenting Your Case Visually

This is especially important when you’re dealing with high-level decision-makers like a C-level executive.

• They might not be knowledgeable about exactly what you’re selling.
• They probably won’t be using it.
• They’re somewhat removed from the day-to-day.
• They heavily influence (or directly control) the budget.
• You only have a short window of time with them.

These members of the buying group normally have final or near-final say in whether you win the contract. Although you won’t spend as much time with them, that isn’t a disadvantage — they predominantly want to see ROI.

The easiest way to convey your product’s potential benefits to them is through visuals. You can use screenshots, charts, graphs, and examples from case studies to make an otherwise complex product more digestible.

9. Leveraging Social Proof

To be frank, buyers want to know what you’re selling works. But they don’t want to hear it from you.

After reading a solid review, 92% of B2B buyers are more likely to purchase from that vendor. And 86% say word-of-mouth is the most important factor in their purchasing decision.

So what does this mean for price negotiations? Use…

• Reviews
• Testimonials
• Case studies
• User-generated content
• References

… to tip the scales in your favor.

The more advocates you have for your product (and the more proof you have it works), the less often you’ll have to go back and forth on pricing to begin with.

10. Negotiating in Stages

Assuming you keep everyone in the buying group aligned, creating incremental agreements makes it easier for the customer to agree to a higher price. This works fantastic when you’re solving multiple problems or selling several different pieces of a solution.

Start by quantifying one specific problem that they’re having. Once you have a baseline and can show what their current spend is costing them, you can demonstrate the value your solution would provide.

Once they’ve agreed on that initial agreement, get into another round of negotiations about how much more it’d cost to add in additional features or services. By the time they start to think about everything they need and how much each piece will cost individually, the total price of your solution won’t seem so shocking.

Price Negotiation Best Practices for Sellers

Know when and where to negotiate.

You have to have a certain level of awareness when it comes to negotiating a price (this is true for B2B and B2C settings).

Good opportunities for price negotiation are generally marked by a high(ish) degree of customization or uniqueness.

A few examples:

• Enterprise sales agreements
• Channel sales partnerships
• High-end consulting arrangements
• Digital marketing services
• Multi-year contracts
• B2B manufacturing deals
• Your most valuable customers

In instances like these, negotiations are the best way to grow maximize sales. But there are plenty of scenarios where being overly-willing to negotiate will (a) lower customers’ perceived value of your product or service and (b) come off as untrustworthy.

Could you imagine if you were paying the $100/user/month ticket price for a SaaS subscription only to find out the company sold the same subscription to dozens of other companies for $30? For products and services with a standardized pricing structure, you’ll want to avoid negotiation.

Establish clear pricing guidelines beforehand.

Before you ever start talking prices, set a lower bound that you’ll walk away from the table if someone won’t meet. Any time a customer won’t move above that figure, walk away.

If you can, offer multiple pricing tiers. This makes it easier to negotiate for both parties, because the customer can see exactly what they’d be getting and paying at each level. It also saves you from certain negotiation objections, since customers with fewer needs can access your product at a lower price point straight away.

Finalize all pricing guidelines before the negotiation starts (and stick to them). If you wait until after the negotiation, there’s a good chance you’ll end up offering something nobody wants to pay for.

Ask open-ended questions.

Consultative and value-based selling require you to actually know a lot about your customer, their needs, and what might influence their purchase decision. When it comes to price negotiation, you need this knowledge. It’s what will help you speak to your product’s value from their perspective.

The more your prospects are talking, the better. Ask open-ended questions (as opposed to yes/no) when pricing comes up. When they give you a lower price, be inquisitive as to why they’re suggesting that price.

Present your offer in the best possible light.

When crafting sales proposals for potential clients, it’s crucial to highlight the benefits, rather than focusing on how they diverge from the client’s ideal scenario. You want to shift the perspective from what is being compromised to what they gain.

Let’s say you’re a software vendor aiming to secure a deal with a company looking for project management tools. Instead of highlighting how your pricing doesn’t match their hoped-for budget, you could frame your offer by underscoring the efficiency and productivity gains your software can bring.

Instead of saying, “I understand you’re looking to maximize efficiency within your teams, though it’s impossible to get the annual value down to $50,000,” you might say, Since I know what you’re paying right now, though, I can shave ~20% off that figure. That’s a great deal of savings, no?”

Don’t overvalue what you’re selling.

The endowment effect — a cognitive bias that places high value on goods simply because we own them. To avoid this, get reliable third-party approvals from third-party experts, references, and reviews.

• Software users
• Real estate agents
• Business owners in relevant industries
• Professional association members
• Consultants

Anyone who is neither a customer nor employee has the capacity to validate your offering and neutralize any potential endowment effect is fair game for this.

Never compromise on ethics.

No matter what…always remember you’re representing a business, and that involves a certain degree of responsibility.

• Do not lie to your customers about pricing.
• Never trick someone into buying something.
• Always tell buyers when their contract price will increase.
• Avoid selling products a buyer doesn’t need. 

In addition to being an unethical thing to do, these issues will catch up to you later in the form of customer dissatisfaction, poor reviews, and fewer inbound leads.

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