Business owners and leaders are bound to make mistakes. While many mistakes have trivial consequences, others can be systemic, go unnoticed and become absolutely fatal to a company’s success. Here are three of the most deadly mistakes–if you recognize any of these in your business, you should take immediate corrective action.
Mistake 1 – Compensating your salespeople based on revenue
We all know the phrase, “Compensation drives behavior.” Companies that compensate their salespeople based on revenue find themselves under constant downward pricing pressure. Salespeople will focus on driving revenue only, and will get the deal, regardless of price. Worst of all, they will respond to customer objections with offers of greater discounts. They will spend more time trying to convince management that they need more discounts and less time reinforcing the value the product delivers and defending its price to the customer.
If you recognize this in your business, your revenues are probably OK, but your profits may suffer. Your business has been commoditized and your salespeople have lost the skills and training they might once have had to sell your products on value, defend your pricing and contribute to the profits of your company.
Mistake 2 – Believing all that your customers tell you
Whenever your salespeople, marketing representatives, or executives interact with your customers, the customers have one overriding agenda–to make sure that they get the best deal possible the next time they buy from you. This means they will say whatever it takes to get a lower price, more for their money, longer payment terms, free included services, or other bargains.
If you believe everything your customers say, you will include more options and features with your product than you really must; your costs will increase and your profits will suffer. You’ll also end up pricing your delivered product too low.
Mistake 3 – Using simplistic pricing models
Most companies take their costs and mark the price of the product up by some percentage. Or, just as bad, they base pricing on their gut feeling or some competitor’s price list. This is a de facto guarantee that you will end up with the wrong price. If it’s too high for some segments or your market, sales volume will suffer. If it’s too low for other segments, you won’t make as much profit as you could. Or worse, you’ll price even lower and lose both sales volume and maximum profit potential!
Have you noticed that 12 ounces of soda has different prices depending on where you are? Going from lowest to highest, there’s a supermarket price, convenience store price, fast-food price, restaurant price, and movie/theme park price. These price decisions have a rationale behind them. What’s the rationale behind your prices? There are proven methods to find out exactly what customers are actually willing to pay, and what will make them pay more. These methods are based on decision-behavior simulations through market research. Such research isn’t free, but the payback often comes just a month or two after making the changes.
If your company is making any of these three sales mistakes, you can make needed corrections by replacing gut feeling with process, analytics, price management–and finally–hard data about what your customers really want, and how much they are really willing to pay. Then you need to train your salespeople to defend your product and pricing, and close the deal without discounting. Instituting such a process will lead to quick paybacks.
Per Sjofors is the CEO of Atenga, Inc. (www.atenga.com) and has more than 20 years of executive management experience and has built a number of successful, and very profitable, sales and marketing companies in Europe and in the US. Per also co-founded industry association G-SAM and has published a number of articles in industry press, such as Inc Magazine, Industry Week, Investors Business Daily, Fortune Small Business and more.