Price Qualification: The Tiffany Way

Most salespeople are familiar with so-called BANT qualification:  does the prospect have Budget, Authority, Need, and Timeframe in order to make a purchase?  While Solution Selling purists dislike BANT (arguing that it’s great way to find existing deals that have been already rigged for the competition), most sales organizations today use BANT, or some form of it, for lead qualification and scoring.  Typically, in an enterprise SaaS company, a sales development rep (SDR) will not pass an opportunity to sales unless some form of BANT qualification has been performed.

The purpose of this post is to drill into how you should do price (i.e., budget) qualification, which I believe is far more subtle than it appears:

  • People can sometimes spend far more than they are spending (and/or imagine they can spend) once they realize the total cost of owning their current system and/or the total benefits of owning a superior one.  Great salespeople, by the way, help them do precisely that.
  • SDRs barking average configuration prices or, worse yet, price list items (e.g., “enterprise edition has a base fee of $100K/year plus $2.5K per admin user/year”) can either scare away or anchor bias prospects to given price points.

For example, let’s say that your company sells a high-end planning/budgeting system (average cost $250K/year) and you find a prospect who is spending $50K/year for their existing planning/budgeting system, which isn’t delivering very good results.

  1. It’s inflexible and doesn’t allow the VP of Finance to make the reports the CFO repeatedly requests.
  2. It’s arcane and requires highly paid consultants to come several weeks/quarter in order to make changes and performance maintenance on the basic setup.
  3. It’s slow, so users are frustrated trying to load their budgets, and instead mail them to Finance via spreadsheets, asking Finance to do the loads, creating a significant amount of incremental work for the finance team.

How are we supposed to price qualify this opportunity?  Ask the prospect:

  • How much they want to spend?  Answer:  as little as possible.
  • How much budget they have?  Answer:  $50K.
  • How much they are paying for the existing system?  Answer:  $50K.

As an SDR, are you supposed to pass this ostensibly $50K opportunity to a salesrep who normally does $250K deals [1]?  If you’re smart, you know they have the money — those consultants in problem 2 might run $100K/year, they probably have to hire an extra analyst or two to solve problem 3 at $80K/year each, and problem 1 — which is career threatening for the VP of Finance — is, as Mastercard likes to say, “priceless.”

What’s more, what do you say if the prospect tries to price qualify you?

You know, we don’t have a lot of money for this project so I need to know the typical price of your system?

What do you say then?  $50K and jeopardize the deal downstream when the salesrep proposes $250K?  $250K and possibly scare them off at the start — even though you know the total cost of their existing system might be bigger than that today?

Capture

I’ve always liked Tiffany’s as a reference point for this.  As you may know, most Tiffany’s stores are divided in two.  On one side — typically the smaller, more crowded one — you can buy jewelry from $200 to $2,000.  Then there’s the other side, where the security guard hangs out, that’s bigger and less crowded, and where the jewelry costs from $10K to $200K+.

The thing I find funny about Tiffany’s is that somehow, magically, most people seem to figure out what side they belong on.  And when they don’t, the staff don’t ask you how much money you have — they tell you broad price ranges on each side of the store.

The keywords, in an enterprise software context, being “broad” and “ranges.”  So, in our scenario, I think the best initial answer to the pricing question is:

That’s a hard question to answer at this point.  Each customer and every situation is different.  Our systems scale across a broad range of needs and, as a result, prices typically range from $50K on the low end to $500K+ on the high-end.  Based upon what I know about your situation, I’d recommend that you have a conversation with one of our account managers so we can better understand your challenges, our ability to meet them, and establish a clearer price point for so doing.

Your goal is to neither scare them off nor anchor bias them to a lower price (“sure we can do that for $50K”) that later results in disappointment or, worse yet, a feeling your company can’t be trusted.

Finally, the great part about the Tiffany analogy is that most enterprise software companies actually do have both sides of the store — corporate sales and enterprise sales, often each selling different and appropriately priced editions of the software. While few SaaS companies actually segment between the two based on deal size, they typically use other variables that are intended to act as direct proxies for it.

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Notes

[1] The answer in most SDR models would be “yes, just pass it” so the hard part isn’t the decision to pass it, but how to do so without anchor biasing the prospect to a $50K price.  (“Whoa, the SDR told me you could do this for $50K; he asked how much budget I had and I told him precisely that.”)

 

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