Chapter 8

Money, Pricing, and Commercial Terms Tactics

Talking about money earlier and with confidence: pricing conversations, negotiation, discounting, and commercial terms.

The next points of friction come when you’re talking money. Even if you have the best product for their needs and you both know it, they will probably try to pay less than you’re asking. It may not even be a real budgetary constraint for them. They may just want the “win.”

You can’t just wait for these objections to land. You need to be proactive. And you need to understand the different types of money conversations.

Tactic 8: The ROI Conversation (Mindset)

The dumbest thing ever uttered by anyone making a purchase is questioning the return on investment (ROI). It can be anything like the following:

So listen up, buttercups, I am looking at your C-level exec who loves to manage through spreadsheets and never had to worry about their job because they didn’t ever have to carry the bag.

The jig is up! Here is why you asking about ROI helps me know you are not as smart about negotiating as me. I know, and everyone knows—at least they do now—that no matter what I tell you, you will not believe me. Marie Curie, Steve Jobs, and Stephen Hawking could all be resurrected tomorrow, get a billion dollars in funding to create an ROI calculator, and you still would want them to show their work like a fifth-grade math teacher.

What this tells me is that you are lying. You are saying this because the moment I say, “So when I show you the ROI, you are ready to sign, right?” you will have another excuse.

And do you know who the easiest people to negotiate with are? Liars. Because one lie begets the next, and the next thing you know the liar just tangled themselves up in a spiderweb of their own design. If you think I am wrong, ask any parent how easy it is to tell when their kids are lying to them and how they get them to confess. It’s the same skill. Just a different spoiled child.

Now, the real challenge is for the seller. It’s about us. It’s about whether we’ve done a good job determining Economic Impact through better discovery. Did we ask the right questions to get our prospects and customers to give us real numbers that prove Economic Impact?

And even if we did and the numbers make sense regardless of budget, are we or our bosses willing to walk away? If not, you will lose every time.

So here are some tactics you can use around pricing to help you get through the dumbest things your prospects and customers will bring up.

Tactic 9: Commercial Terms

Improving negotiation skills is one of the most frequent requests we get when it comes to sales training. When I dig deeper, though, our customers finally realize it’s not the negotiation skills that need improving; it’s that the team’s discovery skills simply suck.

If a salesperson cannot get the prospect to articulate the Economic Impact of the pains they are experiencing, there is no way they are ready to handle pricing and negotiation conversations. And you will fall into the ROI trap.

So let’s start with some basics: pricing and budget vs. Commercial Terms.

Anytime a prospect starts using the words “pricing” or “budget,” especially early in the conversation, we immediately change that phrase to “Commercial Terms.” And here is why: commoditization.

People naturally shop by comparison. This means your customers come in with a specific frame of reference and treat every purchase like a commodity. And in their mind, you are always just like the least expensive version of something and therefore you have less value. Then as the customer digs in more, they must start selling themselves on the superior quality of one item over the next.

The simplest example is purchasing cars. Generally speaking, we know there is a pricing difference between a Ferrari and a Hyundai. We also know that we cannot walk into a Ferrari dealership and demand a Hyundai price simply because they both have four wheels and get us from one place to the next.

However, your buyer does not see it this way. In many cases, they do not even understand their own pains and what those pains are costing them in real dollars, and therefore they want Ferrari performance at a Hyundai price. (And by the way, this is not a slight on Hyundai; it’s simply an example.)

So when our prospects come to us, they are naturally thinking lowest price and highest performance. That’s OK, we all do it. And because they so often come with an anti-salesperson bias, they also want to win against the salesperson.

It’s our job to help them feel the difference between us and everyone else. We want them to want us (an example of the Child Ego state).

Once they do, that’s when we know we are closer to an actual deal. And this is achieved by changing the conversation in various parts of the sales cycle. One way to do that is to start early and speak to their consciousness, which can eventually shift their subconscious biases.

For example, you are on the first call with a prospect and they inevitably ask, “How much does it cost?” And reps get very nervous and start stumbling around with “Well, uhh, it depends on . . .” or “Well, I can ballpark it...”

Just like the ROI conversation, this is your biggest moment of weakness. You have just told your buyer there is no fixed price, and the way you said it suggests you are scared. They are sharks, and they smell your blood in the water. And they are very hungry.

So if we shift our answer ever so slightly, we can establish more value and credibility.

The sooner we start using the phrase “Commercial Terms,” the sooner we lay a new foundation in both their conscious and subconscious mindsets. A foundation that says this will be about an exchange of goods and services for a certain amount of money that’s fair for all parties.

It reminds them there is real value to what they are purchasing, and neither you nor your company are a commodity. It means your competition is just treating your prospect like the prospect has a headache. “Commercial Terms” helps the prospect understand they actually have a migraine. And we can empathize with them and help them take this pain away.

Remember, people choose to work with you not just because of what you do or the price you set. How you conduct business factors in. Elevating the conversation around money shows you see and understand their big picture, their specific pains, and that you both understand things need to be fair.

Tactic 10: How Does That Feel?

Anytime I see a price that is an even number in something like B2B software and hardware sales—$10,000, $25,000, $100,000—I already know this is just someone picking some number. Hopefully they have done their research and the price is in line with the market rate, but even if that is the case, I already know I can start to negotiate. Someone on their team doesn’t understand how to use the distraction of odd numbers to reduce discounting.

Ever wonder why when you choose font sizes they are always even numbers? It’s simple. It’s because they are easy to digest. There is no complexity, so your mind does not have to think very hard. It’s just an easy solution and it’s been provided to you.

On the flip side, odd numbers make you pause and think, just for a microsecond.

Ever adjusted that font size from an even to an odd number? Did you go from 14 to 16, then realize you had to use 15? And sometimes that still “feels weird.”

Even something as simple as $7.99 makes us pause and think, oh, that’s $8, not $7. For that microsecond we are distracted.

So when quoting prices to our prospects, we should do the same thing: use odd numbers so we can cause a distraction. Because the next four words are the most important words you will ever use in your negotiations: “How does that feel?”

For example, “So the cost of our services is $15,479. How does that feel?”

Your prospect hears this number and because it’s so random they are trying to figure out what you just said, or how you even came up with such a bizarre number. They cannot even round this number to $15,500 very easily. This is the distraction.

As discussed earlier, every time people see a price they have an emotional response to it. Their feelings take over, and your prospect cannot resist sharing them with you.

Here are the responses we hear:

  1. Oh, that’s higher than we were expecting.
  2. Oh, that feels about right.
  3. Oh, that’s less than we were expecting.

We can then start the negotiation process as needed, based on the answer. Even the most sophisticated CFOs cannot resist an honest answer and lower their defenses when it comes to negotiating.

Of course many CFOs are going to say it’s “too expensive” or “more than we have budgeted”; however, they are still so distracted thinking about this bizarro odd number that they don’t even realize their emotional defense mechanism and negotiation skills have opened the door for me to maintain pricing integrity.

And here’s one thing we notice and of course love: that old-school CFO who loves to scare salespeople. Oftentimes they are so distracted by the odd number, they give a purely emotional response and never use the word “budget.” They are simply too distracted.

So why does this happen? Because nobody has prepped or trained them how to avoid answering this question without being honest. You will hear it in their tone of voice. It will shift. It will not be as strong as the standard “Oh, it’s outside our budget.” They may say those words, but they will not have the annoying paper-cut feel you often experience when you hear it.

You will see them squirm and see their eyes and eyebrows shift uncontrollably. These are their “tells.” And this is the moment you win.

Remember, pricing doesn’t have a look or a sound. It is a feeling, always.

Now, what happens if you ask “how does that feel?” and you still get “that looks high” or “that sounds too expensive”?

What is really happening is they are having an emotional response. We want them to tell us how it feels because when they do, we can have a real conversation about Commercial Terms.

Tactic 11: Handling the Discount

Are you really shocked by the discount question? I mean really?

If you are, then you must either be new in sales or constantly smoking the hope-i-um.

Please stop discounting at high levels like 30 percent, or even 20 or 10. You are hurting yourself and falling into the “fear of loss” trap. Or better yet, simply stop discounting altogether.

By the way, do you present the discount as “hey, I am doing you a favor” when you bring it to your prospect? News flash: they don’t see it that way. They see it as “we are doing you a favor allowing you to sell to us.”

In addition, you are setting yourself up for greater disappointment, anger, and frustration next year at renewal time. That’s when you get the “grandfather pricing” conversations with customers who expect to pay the same amount every year.

So what happens because of the discount you gave in the first contract?

  1. Your leadership is angry at you, especially since they approved the price last year.
  2. Your customer thinks they are doing you a favor.
  3. Your Customer Success team is already behind the eight ball on the first day the contract comes up for renewal.
  4. Your customer is going to be angry at you in a year when you give them the higher price because they think they have been doing you a favor, not the other way around.
  5. Your leadership team is angry at you again because they think you cannot do your job and raise the price.

So whose fault is all of this anger resulting from discounting? Your CEO’s. Ultimately, they are the person who allows for a discounting culture. Even if they are not aware of it, they are, because in the board meeting “the buck stops with them.” Your leadership team did a shitty job on product/market fit and pricing if your organization is always discounting.

There are many times you can charge more than your competitor. Remember, it all goes back to the Buyer’s Experience, having them fall in trust with you, helping them explain their migraines, and Economic Impact.

Sure, I can fly somewhere more cheaply on Southwest Airlines than Delta, usually. Yet Delta still sells those seats at a higher price. So you don’t have to discount as much as you probably do, and in some cases you may not have to discount at all.

Now, sometimes discounting is unavoidable for one reason or another. If you must discount, here is what we have done in the past and teach our clients. When someone asks for a discount, and assuming you will negotiate, simply say the following:

There are four ways we can both leverage commercial terms:

  1. Marketing support (case study, logos, customer quotes)
  2. Multiyear contracts
  3. Prepayment
  4. Additional licenses

Which ones would you like to discuss?

Everyone thinks discounts need to be big. We recommend making each of these discounts small to start and letting them scale. So if they choose one, they get a 2.59 percent discount; if they choose all four, they get a 9.17 percent discount. Yes, this is just under 10 percent, and that is on purpose.

Once you start discounting, you have two options:

  1. You can say that’s all there is.
  2. You can negotiate a bigger discount.

If you’re negotiating the bigger discount, remember: the prospect wants a big win, and that win is as much emotional as it is financial.

Now imagine you have to give up more. We suggest 15 percent as your ceiling. And here’s why. From the prospect’s perspective, they nearly doubled the discount (from 9.17 percent), therefore they “won,” and most importantly, they feel they were “better at negotiating” than the salesperson.

OK, let them have that win in their mind. But remember that discounting hurts you in the future. So what do you do to help prevent that awkward moment in nine or ten months when it’s time to renew?

If you discount the first contract, please be sure it is specifically stated in all your communications that it is the “first year only.” And it is imperative that in the contract there is phrasing such as “Upon renewal, the pricing will be adjusted to standard market rates.”

Failure to do this will simply make renewals that much harder and frustrate you, your Customer Success team, your boss, your executive team—and your customer.

Here’s a hint: go to your leadership team, legal team, or whoever controls the contract template and tell them they have to figure out the right wording. And if they cannot or will not, then you have an indication on the leadership sales skillset. Make note of this—it will matter as you make career decisions.

As your deal sizes get bigger and the companies you sell into also become larger, one of the final steps in the negotiation process is dealing with procurement. In some cases you may not ever be able to speak with someone on the procurement team; in others you most certainly will. This section is dedicated to the best practices on how to approach a conversation with procurement—one that is not always about price.

When you get to procurement, it is important to think of them as a new customer, not just another department you need to get through to get the deal signed. And like all customers, they have specific needs. So it is your job to do discovery on those needs.

Remember: their job is to save the company money, and it’s not wrong—but that is not their only motivation or initiative.

Tactic 12: Negotiating with Procurement

The most important thing to know about procurement is that they are not your enemy. I know this may be shocking for some, but after speaking with several leading Fortune 500 companies’ procurement representatives, I’ve found they are actually on our side.

Now, this does not mean they are going to simply pay what is asked. It really means they get it. They know how salespeople are compensated.

Here are some things you might not know about procurement departments:

  1. Their job is to analyze the options and help the company make good decisions. This does not always mean it has to be the lowest price.
  2. Sometimes savings can mean not increasing costs. Sometimes it means they understand the long tail of a total cost savings in relation to cash flow.
  3. They do not want pricing conversations to be adversarial.
  4. They don’t feel that discounts have to be 20 percent, 30 percent, 40 percent all the time.
  5. They actually want to hear from sales sooner than later. Yes, this means they want to be involved way before you get to actual pricing and negotiations. And often even your internal champion is clueless about this desire. Procurement doesn’t want to do deals the last week of the quarter or the last week in December any more than you do.

Procurement departments have pipelines, revenue goals, and dashboards just like sales departments— with one exception: their pipelines and dashboards run in reverse.

We like to call this the Reverse Revenue Dashboard. Procurement staff are measured, and sometimes compensated, on how much money they save on each purchase. Just like us, they love to see their pipeline grow, and then see how much they can save.

Their dashboard may look something like this:

Company Their Initial Price Our Desired Price Delta $ Delta % Final

A few things to think about when considering the procurement mindset:

  1. Their pipeline is always inbound.
  2. The bigger their pipeline, the easier it is for them to actually negotiate harder with some clients than others.
  3. They are often measured by percentages more than money. Which means even small percentages are a win for them.
  4. They love to scare salespeople.
  5. They rarely have the power to say “no” as much as they imply.

When negotiating, especially with procurement, you already have the advantage. It’s just that nobody has ever taught you this until now. In fact, you are the house, the odds are stacked in your favor, and you are holding pocket aces.

Know your numbers and be sure to consider everyone’s time on both sides of the table. It’s not just about your time and your champions’ time; it’s about everyone this deal touches.

Here’s a breakdown of how to track time spent for both sides.

For knowing your side’s numbers—in this deal, how many people-hours has your organization put into:

  1. Live meetings with your prospect
  1. Calls with your prospect
  2. Your “debrief” of each conversation
  3. Thinking about the deal, even on your commute
  4. Talking to your leadership team separate of meeting debriefs
  5. Spending time with others on your “deal team”
  6. Getting advice from colleagues and coworkers
  7. Writing emails
  8. Thinking about and responding to their emails

For knowing their side’s numbers—how many peoplehours has their organization put into:

  1. Live meetings with you

Thinking about the deal

Talking to their leadership team

Spending time with a competitor

  1. •
  2. Trialing vendors’ products
  3. Getting advice from colleagues and coworkers
  4. All the emails, both internal and external
  5. Thinking about and responding to your emails

Remember the following:

  1. Include everyone’s people-hours, not just yours.
  2. For every thirty minutes you spend with your prospect, add another thirty for the “peripheral project time.”
  3. Don’t forget to include everyone on your side.
  4. For their side, include all their people at the meetings.
  5. Also include all their people who are not at the meetings but they have to go and check with.
  6. Also include what else their people could have been working on that did not happen because they were engaged in this process. Example:

All in, you’ve spent approximately eight people-hours on this deal. And this doesn’t include any opportunity costs associated with what did not get done and the impact that could have on your organization’s revenue.

Now run the same exercise for the prospect’s team.

While it may be eight hours for your organization, it could be ten, twelve, or even fourteen hours for them. And again, this does not take into account any opportunity costs associated with this time.

Those fourteen hours are one of the aces you’ve been dealt.

And now you need to remember the dollarization exercises around Economic Impact from your discovery. This is the other ace you’ve been dealt.

You are now holding pocket aces. Understanding their mindset, as we’ve covered above, is the flop. And the flop is showing ace, king, jack.

Now, let’s roll out a conversation outline for working with procurement departments.

First you want to understand their role. Each company can be different. Here is a list of discovery questions to ask when you first speak with procurement. You should approach this as a Procurement Respect Contract and then ask these questions:

As they answer these questions, you may notice a change in their tone of voice. It may become slightly more relaxed. And you may come up with additional questions around the process or something else. Keep asking those questions. This is how you get procurement to fall in trust with you.

Now we move on to Commercial Terms. And you do the same thing you did with your champion.

“Our pricing is $ . How does that feel?” They will lie and say it’s too much. The good procurement people will stop after saying “too much” and expect you to lower the price. They will pause a very long time. Others will simply ask for a discount straight up.

Your only response is “OK, what are you expecting?” The good procurement people will say “something less” or “something lower” and again expect you to offer a lower price. Don’t fall for this. You would be discounting yourself, and you won’t be done because they will reject this price too.

Your response is simply “Well, our pricing structure is based on what the market will bear.” Now it’s your turn to pause; count to at least “3 Mississippi Delta Queen” (you will do “3 Mississippi” way too fast).

You can now say, “What number are you thinking?” Because guess what, they have a number.

Your response is always simple. And frankly, it does not matter what their number is, because you are already prepared; they just want to feel heard.

Remember, they are now in a Child Ego state: they want a discount. It’s our job to be a Nurturing Parent, and here is how we do that:

  1. “There are four ways we can both leverage commercial terms, and each is worth 1.7 percentage points:

Which of these can you commit to?” Did you get distracted doing the math of 1.7 percent × 4? So will they.

  1. They will say something like, “That is not enough; we need it to be or we cannot move forward.” You respond simply, “I understand what you are asking, and this is our most favored pricing.” (Yes, “most favored pricing” is a phrase they use.)
  2. They will still ask for a bigger discount, and you revert to the most powerful negotiation statement ever used: “I understand; as I mentioned before, our pricing is based on what the market dictates. Why don’t I do this—I will go back to [insert champion’s name] and see if they have any ideas about where to find additional budget dollars.”

In card-playing terms, this turn produced a jack. You are now sitting on a full house and watching the others make silly bets because they are bluffing.

You will then need to go back to your champion and walk through the conversation with them and get their advice. One of two things will happen: either they will find the additional dollars, or they will say, “Ugh, I am not sure what to do; we may have to go to the competition.”

Your response is where you can make use of those numbers you’ve tracked.

“Well, I am confused. When we spoke, you shared that the Economic Impact to your team is $ . And from my math, it seems like your team put in thirtyplus people-hours to get us this far. Would you say that’s accurate, or do you think it’s been more than thirty hours?”

It kind of doesn’t matter what their answer is. These are the next questions to ask your champion:

  1. “Well, I know you looked at the competitor, which is fair. I am curious:
  1. “Now here is where I am confused:

And the final hand produced the final ace. You’ve now converted your full house to quads, four aces.

The question is: are you willing to risk it? Either you are sitting there going “Fuck yes! I am going to do this!” or you are thinking, “Great, Richard, that sounds awesome on paper, except I have goals to hit, pressure from my boss, a job to keep, bills to pay, and mouths to feed. So yeah, it all sounds wonderful, but I cannot take this risk.”

I understand. I have been there myself, and yes, it’s easier for someone like me who runs their own business to take these risks. But I too have mouths to feed. And I have no desire that anyone put their livelihood or families in a bad situation.

Our goal in sharing this strategy is to share best practices and not only give you the option to do this, but also give you a strong script to pull from. So often we are afraid to try things in sales because although we know what we want to do, we don’t always have the right words. So often leaders tell us what we should do, but they have never done it themselves, and they don’t have the right words either.

Now, for the sales leaders reading this section, if you want your team to do this, here are our suggestions:

  1. You need to write the script.
  2. You need to role-play it out loud a few times.
  3. You need to be a leader and do it first.
  4. You need to role-play with your team until it’s perfect.
  5. You need to stand up to your leadership team and let them know what you are going to do, and that they have three options: