Friday, January 9, 2009

Is "Price" Retention Going to be Our Biggest Sales Challenge for 2009?

With a full US and worldwide recession underway, salespeople will face many challenges in '09. Recently, we have also seen falling prices at the pump. While this will likely be the #1 reason we will get out of our current recession, I certainly believe there will be drawbacks to falling fuel prices.

When we were hit with record gas and diesel prices in 2008, we saw numerous products spike in price. Basic food items such as milk and bread went up overnight. Most retail products jumped, also. Raw materials jumped up in price as well rather quickly - including steel and most building materials. What all of us learned from this is that in our present time, fuel is the engine that drives our economy. You might not like it, but it is certainly the truth. Think about it. Before oil became a widely used natural resource, most of the world lived in log cabins or huts accompanied with outhouses.

With fuel prices falling, the numerous competitors that exist in every industry will eventually lower prices in an attempt to gain market share and also because the present market conditions demand it. This will negate the price increases that were passed along in 2008 that propped up sales for many companies. With a full recession underway, some companies had also already been making "never seen before" deals to prop up sales before fuel started its downward trend in price. The combination of these issues will put a great deal of pressure on salespeople to make their sales quota for 2009 and be able to preserve the price they had been getting on their products or services in the second half of 2008.

Is there a way to combat and fight these issues? You bet there is. There is no time like the present to scrutinize your proposals to make sure they present a solid profit justified solution. If you can show that your solution will increase efficiency, productivity, and recover lost revenue - you will be able to preserve the price you have been getting. Don't forget to add in the fact that more companies are willing to take a look at who they are doing business with during a down business cycle, either. If you can prepare for these challenges that will face all salespeople and companies this year, there is certainly no reason why you cannot have a successful 2009 sales year.

8 comments:

Tibor Shanto said...

Hi Will,

I think you bring up some good points, most importantly the need to sell value, efficiency, profit, etc. But i am not sure that fuel relates to margins across the board. For a lot of industries, it is more like "real interest" rates vs. "the" rate we get at the bank. If you back out inflation from the rate at the bank you get the "real" interest rate. So if prices spiked because of fuel, once that recedes, the total cost should reflect that and margins "should" stay in tact.

"Should", but companies and clients will always play games to fudge reality.

Tibor

Skip Anderson said...

In the B2C realm, we aren't always focused on providing increased efficiency and productivity, and we aren't often focused on recovering lost revenue. But I understand and agree with your point.

In the B2C market, where I consult and train, it is imperative that sellers focus on value (as defined by each individual prospect).

From the Author: Will Fultz said...

Tibor & Skip,

Thanks for both of your comments.

Tibor, I think you are correct on something that I was incorrect on or could have phrased better. "Price" retention would have been a more accurate term instead of "Margin" retention for this article. Although I do believe margins might ultimately be harmed in the long run.

Will Fultz

Ian Brodie | Sales Blogger said...

Hi Will,

"Value Pricing" has always been the holy grail for consultants. It seems so logical and fair - base your pricing on the value the client gets from your services. But many clients are surprisingly resistant - they look at what (they think) your costs are(and often assume that they're the same of your salary!). Nevertheless it is the way to go if you can do it well.

Alan Weiss (http://summitconsulting.com/) has probably written more on this subject than anyone else in the world of independent consultants - and I believe a lot of what he says is applicable to many other types of products and services too.

Ian

Sales Training for Startups said...

1. Make your leave a comment link bigger....I could not find it!

2. You have touched on one thing that will keep companies and sales careers afloat. In 2009 DO NOT DISCOUNT. Those that do will sell more and lose money. Those that do not will sell about the same and MAKE MORE PROFIT!!!

I would rather convince my executive team or sales manager to have gross margin be a barometer of how well I do in 2009.

Let's take a simple example.

I have a $1m quota and at the 2008 price point the company makes a gross margin of 62%. This leads to a gross profit of 48% after Sales G&A($140k) and a net profit on my sales of 11%. That means it costs $370k to run the business and the profit is $110k on every million.

Now in 2009 I see two options, (a) hit 100% of my quota by giving an average of a 20% discount or (b) hit 85% of quota by maintaining the margins. (15% is a typical drop for recessive sales).

In a, you bring in $1m but your gross margin moves down to 40%. This means that after Sales GnA their is now only 26% left. Or, $110k less than is needed to break even. Sure you got paid, but soon you will be looking for a new job.

In B, you only sell $850k, but at a 62% ($527k) margin. This leaves you short but the Sales G&A would move down as well. But, let's suppose it did not and stayed at $140k. That is 16.5%, leaving $387k. Even if the cost of doing business stays @ $370k, the company makes a slim profit and pays the entire sales team's full commission.

For hard times, option B is pretty sweet.

From the Author: Will Fultz said...

Karl & Ian,

Thanks for both of your comments. I agree with you Karl that holding onto margin is more important than sales in '09. Hopefully, the top producers will be able to do both. This will take a combination of hard and smart work to get this point, however.

Thanks again,

Will Fultz

Dave said...

Guys,

You all make excellent points and 'hit the nail on the head'. I can speak from personal experience when I say I have quoted gross margins down to sub 40% when selling into the public sector knowing I will make net sub 15% margin. Maybe a sign of times but having a sales cycle of some 6 months all value propositions have been argued and we are down to our old enemy price.

From the Author: Will Fultz said...

Dave,

Thanks for your comment and your "add" to the discussion!

Will Fultz