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Author : Don Maher

What To Do About Requests for Most-Favored Customer Clauses?

More and more customer purchase agreements include Most-Favored Customer (MFC) clauses. The customer’s goal here is to ensure that they get the very best price—as low as, or lower than, you offer to any other customer under any circumstances.

These MFC clauses are typically accompanied by additional clauses that give the customer the right to look at your costs in detail, including receipts for material purchases and labor costs.

Unfortunately, the customers who insist upon these clauses are usually the large, must-have customers that can make or break your business (because you wouldn’t agree to the MFC clause otherwise, right?). You have to find a way to give them what they want while also protecting your interests.

You might be tempted to push back on the MFC clause and refuse to include it, but I think there’s a better way to handle the situation:

  1. Let them know that you define “equipment” as hardware only
  2. Let them know that you define “products” as hardware plus the benefits and results the customer receives, which include:
  • Performance specifications (what the product is intended to do right away)
  • Payment terms
  • Delivery timing
  • Warranty
  • Field support
  • Problem solving
  • Performance improvement (what the product could do in the future)
  1. Let them know that the product they’re buying from you is unlike any other product you sell to other customers. Therefore, there is no real basis of comparison.
  2. Let them know you’ll agree to their clause as it relates to products. In other words, you agree that you won’t sell the same product—including all of the associated benefits and results, as explained above—to any other customer for less money.
  3. If the customer insists on auditing your costs, tell them you agree, but that you won’t be able to share any confidential information regarding other customers—such as costs, specs, delivery, terms, hardware, or anything else. This assures the customer that you’ll protect their confidential information as well.

That should do it.

The Value of Versioning

Customers like having choices. That’s why manufacturers of cars, computers, phones, and just about everything else offer multiple versions of products, at different prices, with different levels of value. This works because not all customers perceive value the same way, nor are they willing to pay the same price.

There are three basic kinds of buyers:

  1. Price buyers: Price is always their #1 decision criteria.
  2. Value buyers: They are openly willing to pay more for more value.
  3. Poker players: They are willing to pay for value but won’t admit it. (Most customers are poker players.)

To attract all three types of buyers, many businesses offer three well-defined and profitable versions of a product at different prices, with more bells and whistles added at each price point. This ensures that customers get what they’re willing to pay for, but not too much more. If they want more, they can move up to the next version.

The beauty of versions is that they guide the customer toward the product he or she is willing to pay for. This makes everything that follows easier because you’ve addressed price and specs up front, at the beginning of the sales process. (By the end of the sales process, you’ve invested too much time, money, and emotion to walk away, even if it’s in your best interest to do so.)

It’s human nature to want the best version at the lowest price, so it’s the salesperson’s job to figure out what is most important to the customer and steer the customer toward the best fit. Price, performance, payment terms, credit, warranty, field support, product and process improvement, and delivery can all be versioned.

You might be thinking, “Versions wouldn’t work for us because our customers give us the spec they want us to meet, and we respond to that spec.” While that may be true to some extent, remember that a spec is usually a wish list, not a list of must-haves. Again, it’s up to the salesperson to figure out which specs matter and which don’t, and to negotiate and quote the appropriate price.

I’ve used versions to ensure that customers like Intel, Micron, Texas Instruments, and TSMC get what they’re willing to pay for, so I know it can be done. I once used versions to negotiate a $50M service contract with Intel that included a 20% price increase over the previous year.

It’s important to remember that no sales strategy or tactic works in all circumstances all the time. What I’m suggesting is that you try versioning a few times and see what happens. If you do it right and stick with it, your profit will improve. And isn’t that why we’re all in business in the first place?

A Formula for Value-Based Pricing

I define value as the amount of money a customer earns or saves by buying your product vs. buying your competitor’s product, or continuing with the status quo.

To price on the basis of value, first calculate the total amount of money a customer will earn or save over one or two years—think logically but broadly; you must be able to explain this amount, but don’t unduly limit yourself.

Value comes in too many forms to list here, but improvements in yield, throughput, system availability, durability and longevity, and risk reduction are good places to start. Whenever possible, assign a dollar figure to these improvements.

Once you have your overall value figure, price your product at 15% to 30% of that amount.

As you can see, if you do this correctly, you will be able to position your product as a must-have bargain. Your salespeople can talk about price in the context of the return customers will receive, bypassing tedious questions about why your costs are so high.

One of my clients designed and built a system upgrade that would save a customer about $1M every two years. The cost to my client of providing this upgrade was about $40,000. Typically, the client would have multiplied the $40,000 by two to arrive at a price of $80,000.

I recommended that the client price the upgrade at $200,000—20% of the value customers would receive within two years.

The client’s account manager claimed that charging $200,000 was “gouging” the customer, to which I responded, “In what world is a 5X return not a good deal?”

“But our cost is only $40,000! How will I explain the price given the cost?”

“Don’t talk about cost,” I said. “It’s none of the customer’s business. Talk only about the $1M return in exchange for the $200,000 investment.”

In the end, my client reduced the price to $120,000—50% more than the $80,000 they wanted to charge, but far less than they could have asked for and reasonably expected to get. And their customers were delighted to pay it.

As I discussed in my last blog post, you are often your own worst enemy when it comes to profitable pricing. If you keep your focus on value, you will be able to make a lot of money and still keep your customers very happy—because they are paying you far less than what they’re getting in return.

Additionally, value-based pricing enables you to invest more resources into your business, leading to even better solutions for your customers down the line. No one wins when you undercharge for your products and services.

Once you get comfortable with this idea of value-based pricing, you’ll understand that it’s not “gouging” by any stretch—just a smart business practice that benefits both you and your customers.

Who’s in charge of your pricing? You are!

Contrary to popular belief, the market does not set the price when it comes to highly differentiated, high-technology capital equipment. And a handful of professional buyers does not constitute a “market” in any event—especially when those buyers are trained to mislead and even lie to you.

Despite what these buyers tell you, your products are almost certainly different from your competitors’ products. And those differences make your products more valuable to a certain subset of customers.

If basic consumer products like soap, toothpaste, and cereal can be differentiated, high-tech products can be, too. You might argue that these consumers are not as sophisticated as professional buyers, which is true, but neither are these consumer products. The principle works the same way.

Higher prices are the fastest route to higher profits. A 1% increase in average prices can equal a 10% increase in net profit for a company that typically earns 10% net profit. In addition, higher prices can be implemented right away, with your very next quote.

The key to capturing higher prices is being able to explain and justify them based on what the customer gets in return. In other words, you need to be able to say something to the customer like, “For every dollar you spend with me, you’ll earn [or save] X additional dollars.” If you do this effectively, the decision to do business with you becomes easier and less risky.

Over the coming weeks, I’ll address the following pricing topics:

  1. How to talk to customers, senior executives, and supply-chain people about prices
  2. What to say when customers raise objections or challenge your prices
  3. When and how often to talk about price during the sales cycle
  4. How to price on the basis of value instead of cost
  5. How to create versions that allow customers to choose tradeoffs between price and value, long before negotiations take place
  6. How to price services
  7. How to determine what customers will pay before you invest time and money in product development and demos
  8. How to develop an effective pricing strategy
  9. How to successfully raise prices

We have a lot of important ground to cover, so stick with me—I think you’ll find it’s well worth it.

In the meantime, if you take nothing else away from today’s post, remember this one key point: You are not a passive victim when it comes to pricing. The power to set highly profitable prices is in your hands.

The Profit Platform: Pricing, Pitching and People

This blog is a pitch for my services. If you’ve found my previous blogs helpful, I’d appreciate it if you would read the information below and consider ways in which we might be able to work together.

I’m a marketing and sales consultant who helps high-tech companies increase revenue and profit.

I’ve helped many companies boost their bottom line—including:

  • Comet, where we increased gross margins from under 30% to over 40% in three years
  • Magnetic Solutions, where we tripled the value of the company in three years
  • Plasmatreat, where we tripled revenue in five years

Prior to consulting, I was a marketing and sales VP with Applied Materials and Lam Research.

The Profit Platform

Over my 30 years in industry, I’ve developed a model I call the Profit Platform—to be as profitable as possible, there are three key elements that must be in place and supporting each other:

Pricing: Average companies tally their costs to arrive at a price. Highly profitable companies, on the other hand, quantify the value their customers receive and price their products and services accordingly—leading to much higher prices that customers happily pay.

Pitching: many pitches and presentations are too long and difficult for customers to understand and act on. I help my clients design brief, to-the-point pitches and presentations that get attention and drive action.

People: The best pricing and sales strategy in the world won’t do a thing for you if you don’t have the right people to implement it. I help my clients:

  • Hire talented, best-fit employees
  • Develop compensation plans that deliver results and help retain top performers
  • Design the right sales organizations for their company and products
  • Write better job descriptions, goals and objectives
  • Design the right performance measurement systems

A Unique Focus

My clients find this expertise very valuable. Here’s what one of them has to say

“We have been working with Don for over three years now. In that time, his training and coaching have helped us capture higher prices, higher margins, and higher net profit. Specifically, Don has:

  • Raised staff awareness of what profit is, and how to increase it
  • Showed us new ways to market our products based on improved customer results
  • Created effective marketing collateral and presentations
  • Trained our salespeople in both Asia and the U.S. on how to sell effectively
  • Improved our contract pricing and negotiations

In short, Don has fundamentally changed the conversations we have with customers…we are now more focused on the ways that our customers earn and save money by buying from Comet, and that has made a huge difference to our bottom line.”

– Paul Smith, Sr. Vice President, Global Product Marketing, Comet Technologies

My Services

  • Pricing-$2,500 to price a product or service
  • Pitching-$5,000 to develop a pitch and presentation
  • People-$5,000 to develop and implement a plan to recruit, interview and compensate salespeople, design a sales organization, write job descriptions, and develop goals and objectives
  • Coaching and Training-$2,500 for eight hours of coaching and training
  • The Profit Platform Course-$800 per person

Want to Learn More?

Please give me a call at 650-862-0688 or send me an email at don@redchasm.com to schedule a no-obligation consultation and see if we might be a good fit to work together.

Sincerely,
Don Maher
President, Red Chasm

Dos and Don’ts for Effective Sales Training

Even the most interesting and relevant sales training material can fall flat if it’s not delivered well. Here are some dos and don’ts to keep your employees engaged, attentive, and learning:

DO

  • Know what you’re talking about. One of the best ways to prepare is to write a one-page summary, as if you’re writing an advertisement. The one-page limit forces you to prioritize what you’re going to say, be concise, and organize your most important points in a logical order—and envisioning it as an ad discourages you from being boring.
  • Get organized. Lay out your presentation on index cards (real or virtual), then arrange them by priority with the most important information up front.
  • Introduce yourself and briefly describe what you’re going to talk about, and why the audience should care. Always be thinking of your training from the audience’s perspective—what’s in it for them?
  • Start a fire. Get their attention by saying something counterintuitive or unconventional. Here are some examples:
    • “A 1% price increase can equal a 10% increase in net profit. Here’s how.”
    • “Cheap people don’t make good value sellers. Here’s why.”
    • “Professional buyers are amateur actors. Here’s the evidence.”
  • Talk about the most important stuff first. That way, if your presentation is interrupted before you’re finished—or if attention eventually flags, as can happen with even the best presentations—you’ve gotten your key points in.
  • Talk about no more than six subjects every hour. This recommendation is based on new research from the University of Washington. If you’re talking about a product, for example, you could divide the talk into the following six subjects:
    • The reasons why you developed the product
    • The unique advantages the product delivers to customers
    • The customers who are most likely to need the product, and why
    • The price you’re asking and why that price makes sense, relative to the results customers get in return
    • Any problems with the product and why it might not be the best solution for certain customers (see below)
    • Examples of customers who have purchased the product and how well it’s performing for them
  • Talk about fewer, but better, ideas.
  • Talk to the audience, not to the slide.
  • Talk about your flaws and problems openly and honestly. I’ve attended some sales training events where the trainer tries to give the impression that the product is perfect, only to find out later that the product is so flawed that no one buys it. We all know that no product is right for all customers (except perhaps a life preserver on a sinking ship), and salespeople get suspicious when some marketing windbag drones on and on about how perfect a product is. Talk openly about problems, and you’ll build credibility.
  • Break it up. In terms of scheduling, I suggest three to four 90-minute sessions per day with 30-minute breaks in between. The world doesn’t stop for salespeople in training. They need time to do their work and respond to customers, so don’t make your training an 8 AM to 9 PM forced march. If you do, people will tune out (or simply leave).
  • Ask for feedback and answer questions truthfully. Remember—you’re all on the same team, so give people the information they need to do their jobs well.

DON’T

  • Pack slides with dense text. Stick to just one main idea per slide. Dense text practically forces eyes to glaze over and attention to wander.
  • Say “I only have a couple more slides” when your time is up. Plan and practice your presentation to ensure you can complete it easily within the allotted time, with a few minutes left over for questions.
  • Get too technical. Nobody wants to hear you droning on about your new “hex-head screw” or something similar. Focus on big ideas and concepts.
  • Name-drop anecdotal quotes or information. The fact that one customer recently told you that your product was interesting is light years away from having multiple customers actually buying the product at a profitable price.

Sales training is often considered an afterthought, or a “should” to complete before you turn your new salespeople loose. Don’t make this mistake, which is maybe the biggest “don’t” of all. Good training pays for itself many times over in job satisfaction, retention, effectiveness and—let’s not forget—more sales. Put some time and effort into doing it well.

Training for New Salespeople That Actually Works

Once you’ve made a job offer that has been accepted, it’s time to get your new salesperson up to speed as quickly as possible—meaning, as profitable as possible ASAP.

Unfortunately, much of what passes for sales training is really product training, designed to show salespeople how products work. Or it’s generic, with the material being too broad to be of much real use.

You get only one chance to write on the “blank slate” of a new salesperson at your company, so it’s important not to waste the opportunity with training that doesn’t make a real difference.

Sales training delivers the best results when it’s designed specifically for the people being trained, the situations those people regularly face, and the problems your company seeks to solve for its customers.

I suggest designing your sales training around the following questions. If you go into them in depth with your new salespeople, they will come away with an excellent understanding of both your company and their role in it:

  1. What value do we offer customers that they can’t get from our competitors?
  2. What specific problems do our products and services solve, in what situations, and for which customers?
  3. How much do those problems cost our customers? How do we know? How much are they willing to spend to make those problems go away?
  4. What do good and bad business look like, from our company’s perspective?
  5. What types of customers and prospects aren’t good for our business? Those who:
    • Always buy from whichever supplier provides the lowest price
    • Steal our intellectual property
    • Share our confidential information with our competitors
    • Require too much time or hand-holding
    • Are excessively difficult, rude, or demanding
    • Actually cost us money, when all is said and done
    • Ask for endless estimates and proposals but never close the deal
    • (Your reason(s) here)
  6. How do you recognize and turn away bad business?
  7. How and when should you address price and money with customers?
  8. What method do we use to price our products and services?
  9. Why do those prices make sense relative to what customers get in return?
  10. What business case can we make to justify our prices?
  11. Do we have customer testimonials, data, and ROI calculators that support our claims of value?
  12. When customers or prospects tell us they’re not interested or don’t have problems, what information, results, and proof can we use to get their attention and paint the picture of a “better future”?
  13. Which prospects should you approach first, and why?
  14. What questions and objections should you expect, and how do you respond to them?

You get the idea. Train them for the real world—not the world as you’d like it to be—with practical specifics and strategies rather than vague mission statements and models.

Next time, I’ll talk about the mechanics of training new salespeople—including scheduling, slide design, and delivery.

You’ve Identified Your Top Candidate for the Job. Now What?

A lot of hiring resources make “making an offer” sound like the simplest part of the process. In some ways it is—from the employer’s perspective. After all, you have already done the work of defining the job, examining your budget, advertising the opening, interviewing candidates, assessing their relative strengths and weaknesses, and winnowing down the pool to your very top choice.

But you’re not done yet, not by a long shot, and that’s because the money end of things is likely still up in the air.

Even when you know who you want to hire, and you’re certain (or reasonably so) that the candidate wants to work for you, the amount and type of compensation offered can make the difference between a long, productive employment relationship and “Thanks, but no thanks.”

Here’s what I recommend:

  1. Talk with the candidate about the compensation you plan to offer prior to making a formal written offer. Like it or not, unless the candidate is independently wealthy, compensation is one of the most important factors—especially if he or she has multiple job offers to choose from. And you want to be sure, prior to making a formal offer, that it will be accepted.
  2. Make a strong initial offer. How much should you offer? It should be an amount the candidate can not only accept, but feel really good about. Lowballing a candidate will leave a bad taste in the person’s mouth. Top performers, in particular, know their market worth and resent being asked to work for cheap. While there is always room for negotiation on both sides after the initial offer is made, an extreme lowball offer can quickly sour the relationship beyond repair.
  3. Don’t play hardball. While we’re on the topic of negotiating, you don’t ever want to be in the position of negotiating tooth and nail with a candidate, as if you’re on opposing sides of a nasty lawsuit. You are ultimately looking to bring this person onto your team. Again, the relationship will be damaged if you go about the negotiations with an aggressive, winner-take-all attitude. Memories are long, and it simply does not make sense to play hardball over relatively trivial issues.
  4. Round up. When presenting your offer, round up to the nearest $10,000 mark. “$200,000” feels and sounds a whole lot better than “$198,700.”
  5. Consider total compensation. Don’t forget to discuss stock options, company perks and benefits, bonus and/or variable compensation potential, profit-sharing, merit increases, and the like. Oftentimes, these add considerable value (both monetary and psychological) beyond the base salary and should not be overlooked. If stock is involved, talk about the number of shares that will be offered, the vesting schedule, and how often new options or shares of restricted stock are issued.
  6. Listen to the candidate. Last but certainly not least, if the candidate rejects your initial offer—or seems less than fully on board with it—try to find out the real sticking point. It may be something that can be remedied relatively easily (and, if not, best to know this now rather than after making your formal written offer—or, worse still, after the candidate halfheartedly starts working for you).

How Do You Hire for Fit? Paint a Picture

If you’ve ever read anything about goal-setting, you’ll know that experts always advocate envisioning—with crystal clarity—the desired end result.

The same sort of practice can help you hire candidates who fit well with your company’s culture. Because they don’t yet know enough about your company to paint their own picture of what it would be like to work there, you need to do it for them.

If you do a good job of showing candidates what it’s really like to work at your company, they will be able to make a highly informed decision about whether or not they would enjoy working there. This is good for them and good for you as it increases job satisfaction and reduces preventable turnover.

Here’s what I recommend you tell candidates, regardless of whether they explicitly request this information:

  1. Why people choose to work for your company. The reasons could include compensation, career growth opportunities, learning, culture, or others. Spend some time really thinking about this one—the official party line on your company’s strengths may not actually be the true reason people decide to come to work for you.
  2. Why people choose to work for you personally. Do you have a strong record of coaching and training your people? Assembling highly effective teams? Promoting employees to bigger and better jobs? Having their backs and fighting for better compensation for them? Current and former direct reports may be able to provide some insights here.
  3. The level of authority and autonomy employees have. This includes the ability to make and execute their own strategy, allocate resources, hire and fire employees, and spend reasonable amounts of money without having to get prior approval from others.
  4. Your company’s compensation philosophy, along with the amount of money the person is most likely to earn in years one, two and three. Provide real-life numbers, not improbable best-case scenarios.
  5. Career growth opportunities. Some companies—because of size, entrenched higher-ups, or rules (implicit or explicit) about formal stepping-stones—offer few opportunities for advancement, or very slow paths up the career ladder. If this is the case at your company, be honest about likely promotions and timing without being overly negative. If, on the other hand, you offer tremendous opportunities for rapid advancement, shout it from the rooftops!

Obviously, there may be other areas you wish to cover with promising candidates; the above is a suggested minimum. The more they know about your company before accepting your offer, the better.

And don’t worry about scaring people away. Only the wrong people will be deterred—the ones who wouldn’t have worked out for you anyway.

15 Revealing Sales Interview Questions

As hiring managers, we conduct interviews for two basic reasons:

  • To determine if a candidate can deliver the results we need, provide new ideas and better ways of doing things, fit in with our organization’s culture and people, and potentially be promoted in the future.
  • To share information with the candidate that enables the person to make an informed decision about whether or not to join our company, should an offer be extended.

I firmly believe that a lot of employee underperformance and turnover could be prevented by better interviewing. Too often, the wrong people come aboard because the interviewer has both failed to ask the right questions and failed to share relevant information that could discourage candidates from joining the company. Today, we’ll look at the first part of the equation.

Almost every interviewer will ask questions like “Tell me about yourself” and “What are your strengths and weaknesses?” And almost every candidate will have well-rehearsed answers to these questions—which means you’re not gathering any valuable information.

As an interviewer, you need to find out if the person you’re interviewing is really any good, or merely the beneficiary of a strong company, market, or product. You need to know how the candidate thinks, what the candidate does, and the underlying rationale behind his or her actions.

The following questions should help you obtain that information:

  1. How do you sell? Specifically, what do you say and do when customers call you for a quote or proposal, or you target and engage with customers who aren’t familiar with your company or products? Give me some examples.
  2. What is unique about the products and services you’ve marketed and sold? Why do customers buy them? How are they unique relative to what your competitors offer? Is there is a “good enough” product or process already in place for most of your customers? If so, how do you get customers to change and adopt your products?
  3. How do you choose which customers to target and engage with in the first place? What criteria do you use? How would you rank those criteria? Give me some examples of how you’ve done this.
  4. What problems do you have when selling? What stops you from selling more products faster? Rank the problems you have, and explain why you ranked them that way. Give examples and tell me about the results you achieved.
  5. How do you ensure that the revenue you’re responsible for delivering is profitable? How profitable are your customers in terms of gross margin? How do you measure profitability? What other costs do you and your company incur in selling to your customers? Give examples.
  6. Regarding selling, what have you changed your mind about during the last year or so, and why did you change it? What do you feel strongly about and why? What ideas do you have for improving results in your field? Have you implemented any of them, and if so, how did you do it and what were the results?
  7. What do you do on a regular basis to improve your skills and performance? Who and what do you read and listen to?
  8. How do you sell services? Please describe the steps involved. What do you say to prospects to get their attention regarding your services?
  9. What risks do customers perceive in buying your products or from your company? How do you address those risks with them?
  10. What return on investment can a typical customer expect from your products, and how is that ROI better than what your competitors offer?
  11. When and how do you talk about price with customers? How do you defend your prices when customers tell you your prices are too high?
  12. How do you add value to your organization? Relative to what you’re paid, how much money does your employer earn in return and where does that money/return come from?
  13. How do you spend your time in a typical week? How much time do you spend selling and supporting customers vs. internal company activities? How do balance your time between servicing your existing customers and pursuing new ones?
  14. How do you help and support other salespeople in your company? What questions do they come to you with, and how do you answer those questions? Give me an example.
  15. What do you measure your performance relative to? How have you outperformed “the market”? In other words, have you grown your business/territory faster than your industry and competitors have grown? If so, by how much?

Next time, I’ll give you my thoughts on the information you should share with candidates—and how you should share that information.

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