Selling: How can I win with profitable pricing? (part 2 of 2)

As we saw in part 1 of this blog, a consistent reference pricing approach provides the sales team with the freedom to focus on refining their offer based upon the specificity of the proposal and the customer needs, safe in the knowledge that their pricing will be in the “ballpark” in terms of the Market Rate (M.R). How can they go about maximizing the competitive advantage?

For simplicity we will focus on 3 contributing factors that impact this pricing premium.

Firstly, and foremost is your perceived value in the eyes of your customer; simply put, how much do they want you win, and how far will they go in terms of internal support to help you be selected. This has possibly taken you months to develop as part of your opportunity strategy. In terms of the final pricing, this represents how many percentage points you add to the market rate before considering more negative constraints. If you have done nothing than you will start from the M.R at best and can only go lower.

The second consideration is your knowledge of the evaluation methodology for this proposal. Is it a highly formalised lowest price approach or a balanced scorecard whereby multiple factors are evaluated alongside the price of the evaluated workscope. The more rigid the evaluation model, the less likely it is that your differentiation is considered, and the greater the impact of bidding tactics on the final decision.

Finally, the number of alternatives and competitors will impact the winning price. The alternatives serve to act as a ceiling for the workscope..”This will cost me more than I pay today”…whereas the more competitors the higher the risk of aggressive bidding tactics.

Regardless of the domain, building the perception that you can not only provide the solution that a customer needs, but also that you are the best suited to providing this solution will result in competitive advantage. Its impact on the evaluation process depends greatly on factor #2.

Your pricing will depend upon the evaluation model used by your customer, and it cannot be stressed strongly enough that knowing how a proposal will be evaluated is probably the singly most important factor in retaining profitability.

The Mbrace Profitable Pricing (MPP) package provides immediate evaluation model simulations as well as your anticipated revenue based upon the workscope gaps between what is evaluated and what you believe from your preparation will be the realistic workscope. For a multitude of reasons, the evaluated workscope may not reflect the actual workscope which itself provides opportunities to structure your pricing to help retain your profitability should this situation arise. To enable this exercise, the MPP workbook provides the opportunity of using either the Market Rate or SOLVER ( a free add-in to excel) to establish your prices.

Combining a realistic Market Rate derived from a consistent reference pricing approach, with a clear focus on maximising competitive advantage at the time of pricing, is an excellent way to retain as much profitability as you can and still be evaluated as the most suitable supplier.

Profitable pricing doesn’t have to quite so difficult after all!