Sales: Turn Prospects Into Paying Customers
Sales: Turn Prospects Into Paying Customers
3. Sales: Turn Prospects Into Paying Customers
Sales: Turn Prospects Into Paying Customers
We've created something super valuable. We've attracted the attention of people who are likely to be into whatever it is that we're doing. Now we get to the magical part of the business where people actually give you money for this wonderful thing that you've created, right? So the sales process is the process of turning prospective customers, people who are into what you're doing, want more information, into a paying customer, right? Now, the defining moment of the sales process is the transaction. The magical point in time where there's an exchange of value between two or more parties. I want what you have. You want what I have, let's trade and we're both better off for having traded, right? The transaction is the defining moment that makes a business, a business. If you don't have transactions, you don't have a business and the sales process, the transaction is the only point in time where money or resources are actually flowing into the business instead of out of it, right? When yo...
u're creating value, you're spending money. When you are marketing, you're spending money. When you're delivering value, you're spending money. When you're analyzing your finances, you're spending money. You're spending a lot of money, right? Sales is the only time where resources flow into your business. So it's particularly important. And the goal as we were talking about earlier in the minimum viable offer idea, the goal is to go from qualified idea to the point of a transaction, somebody giving you money for this thing that you made as quickly as possible and if you've already been offering something for sale for a long period of time, increasing the number of transactions and the amount of those transactions and the frequency of those transactions to make sure you're selling as much as you possibly can. Okay? Now, prerequisite to a transaction being made is the idea of trust. So if the other party that you're dealing with doesn't trust your ability to deliver the benefits that you are promising them. Guess what? They're not gonna buy from you, right? So there's a certain amount of trust between both parties that has to be present in order for a transaction to take place and having a reputation, as we talked about earlier, the better your reputation, the more inclined people are to trust you, the easier it is to complete a transaction. Likewise, if both parties can verify in some way that the other party is trustworthy and capable of actually delivering upon what they promised, the easier it is to make a transaction. So for example, many large purchases use things like escrow services which is I'm going to sell you something for an enormous amount of money but I want to have a high degree of trust that you actually have the money to pay me before I give this thing to you, right? So the buyer just puts the money in the escrow account and says see? You can see it, here's all the money and that escrow account increases the amount of trust between both parties and makes it way more likely that they'll come to terms and agree to a transaction. Make sense? So trust is the prerequisite. No trust, no transaction. Okay? Now, common ground is also a prerequisite of a transaction and common ground, we're getting into, you'll notice a little bit of negotiating terms. Sales is a negotiation process, right? I have something you want, you have something I want, we're gonna talk about something that's going to be mutually beneficial for both of us and once we agree, we trade and we're both better off. We're both happy, right? So common ground is a state of overlapping interests. It's the situation where we both have something each other want and we're going to agree to trade. No common ground, no transaction, right? If I have something but you don't want it, we're not gonna trade. If you are not willing to trade something that I value enough to trade for what I have, we're not gonna do it. Right? So common ground, aligning the interests of both parties in a way that results in a transaction is the purpose of the sales process, right? And that's where negotiation comes in, right? So you can talk about, what am I going to give you and what are you going to give me? And is that cool for both of us? And you can offer more, offer less, request more of the seller or negotiate the terms of the deal such that you have a situation where both parties are happy. When they're both happy, you have a transaction, right? Now, the pricing uncertainty principle. This is one of my favorite concepts to discuss in sales 'cause it can kind of blow your mind when you think about it. The pricing uncertainty principle states that all prices are arbitrary and malleable. So you can set any price for anything without limitation whenever you want, right? So you can go outside to the street, pick up a little rock from the road. You can say the price of this rock is now one trillion Dollars. You can do that. There is nothing preventing you from legitimately setting a price on this rock for one trillion Dollars. Now that doesn't mean that somebody is actually going to pay you a trillion Dollars for the rock but that can legitimately be the price. You can set your prices to be whatever you want at any time, you can change them whenever you want, no limitations there. The key is being able to support the price that you're asking, right? So you set a price for a trillion Dollars for this rock. Why should somebody pay you a trillion Dollars to have this rock, right? It's probably not important enough that it's just yours, right? There has to be some good reason why you're asking the price you're asking. So a lot of pricing is setting the highest price that you possibly can and supporting that with enough good reasons that people are actually going to be willing to pay the price that you suggest and we do that by educating the prospect about why we're setting the price we're setting and encouraging them to understand the validity of this price and agree that it is worth that much 'cause remember, in general, people prefer to pay as little as they possibly can. So if you set a high price, you have to be prepared to support it. Okay? Now the last idea that we will talk about today is how to support prices and then we will come back to the rest of the concepts in sales tomorrow and then go into value delivery and finance. Okay? So, you set a price, you need to have some way of supporting that and there are four different ways that you can support a price. Now, the way that I like to think about this is by looking at houses, residential real estate 'cause remember, houses don't come with a price tag affixed to them, right? You kind of have, you have to set the price yourself and you have to be able to support the price before somebody is going to be willing to pay it. So, there are four ways to set a price on something. The first is called the replacement cost method which answers the question, how much would this thing cost to replace? Right? So in the case of a house, let's assume a meteorite strikes down from the sky, obliterates the house. There's nothing left, right? How much would it cost you to build the exact same house right now? Tally up the amounts, add in a little bit of margin for the folks building the house and congratulations, you have a supportable price on the value of that structure, right? That's replacement cost. The market comparison method answers the question, how much are other things like this selling for? Right? So if you say okay, I have this house, there's a house two doors over that has the same number of bedrooms and the same number of bathrooms and the same general area in terms of square footage and it's in the same location. It's pretty much the same house, right? That house sold for $500,000, therefore this house is worth $500, 'cause that one is just like this one, right? So using comparable things to triangulate into a price and if a little less square footage, little less bedrooms, you know, if there's little differences, you can adjust the price up or down to compensate, right? Market comparison. The discounted cashflow method, net present value method is a financial way of setting a price to something and the best way to visualize this is, well, what if you decide not to sell the house? What if you decide to rent it? How much could you get if you rented it, right? What are other rentals in the area looking like? And you can use that monthly cashflow that you're getting from that rental and back into a price for the value of that series of cash flows over a long period of time into a lump sum that you would be paid today and we're not gonna talk about the details of what the actual formula looks like. Just know that you can take a series of payments and figure out what it's worth right now. If you're interested, go to Wikipedia, the whole equation is up there. Now the value comparison method answers the question, whom is this valuable to? Right? Is there a specific type of person with specific values that may value this thing more highly? So great example, Let's say there's a really small house someplace in Tennessee, couple of bedrooms, couple of bathrooms, nothing amazing until you realize that that house used to be owned by Elvis Presley, right? Market comparison method would say, this house is kinda junky and not worth very much, to people who really love Elvis, this house is now worth millions of Dollars, right? 'Cause it's valuable to a certain type of person, right? So of all of the different ways to place a value on a price to support a price, the value comparison method is typically the method that's going to get you the highest supportable price because if you understand what makes your offer uniquely valuable, you can support the highest possible price based on what you know your prospects and customers really value. Okay, so first idea that we will start off with today is an idea called a price transition shock. So yesterday we were talking about the idea of you can change your prices, You can raise or lower them at any time but raising or lowering your prices has a very, very important impact on what we talked about yesterday in the marketing section which is your probable purchaser or your ideal customer. So as we talked about yesterday as well, prices send an important signal to the market. They send a signal of status and they send a signal of quality and different types of customers, as we talked about in alternatives and trade off, different customers value different things, right? And so the price that you set for whatever it is that you're offering sends a very clear, very important signal that this is right for some segment of customers and is not right for another important segment of customers. Now, when you change your prices, what a price transition shock says is when you change the price of an offer, the effects aren't limited to your current target market. Often you will stop appealing to one target market and you'll start appealing to another, your customer base changes and sometimes that change is really good and sometimes that change is not so good. So that's what a price transition shock is. Sometimes when you change your prices, all of a sudden your customer base changes too and if you're not sensitive to that and you don't think about how that might change your experience in working in the business every day, sometimes pricing decisions can be not so great. So it's something that you need to pay attention to. Great example of this in the product business. For a long time, we were talking about luxury brands yesterday. Coach used to be a high-end luxury brand. Then they came out with a line that is now sold at Target. Lower price, a little bit less of a build quality, it's ubiquitous everywhere, it's no longer unique. It's no longer a status signal. So when this line came out of Target, which is a huge retailer, right? You're putting this product potentially in front of millions upon millions of people that happened and all of a sudden their luxury business started going away because it no longer meant what it used to mean. Okay, now value based selling and this is something, a series of two concepts that is, you can think of it as a philosophical approach to how you go through the sales process. So just like we talked about yesterday, the popular image of the marketer as shadowy master manipulator, making people want things they don't really need, right? Which is wrong and misleading. People have an image of sales people. Right? when I say sales person, what comes to your mind? Cheesy. Cheesy. What else? Door-to-door salesman. Door-to-door salesman. Pushy, right? Force it, buy it now. Close the deal, right? Don't think about it. Yeah, just do it. Yeah. The high pressure, you get the sense or the feeling that the sales person is only in it because they want to make more money. They are not interested in you. They're interested in closing a deal. So the good news is that this popular conception of what sales is and how it works and what you do when you are a salesperson is not true or it's misleading. You don't have to do it that way and there are two important things to know about the sales process that can help you be more effective and can help you not be high pressure, not push things, actually act in the customer's best interest to make their life better in a way that actually supports you too. So two very, very important concepts. The first is value based selling and value based selling is the process of understanding and reinforcing the reasons your offer is valuable to the prospect. So this is where sales intersects with the marketing process that we talked about yesterday, the better you understand your prospect and the better you understand the offer that you're selling, the more you're able to see the parts of your offer that really, really help and are in the best interest of the prospects that you're dealing with and so as a sales process, if you are able to highlight to your prospect why this offer is a really good idea for them and the better you understand all of the other decisions or choices that they could possibly make and the pros and cons of that, the better you are able to talk about what it is that you have to offer in a way that's going to show them that this is the most valuable thing that they could do and once the prospect really understands that this is the best decision they could make based on what they care about, the sale almost comes as an aftereffect. It's not a push, it's not high pressure. It's helping people understand that you can help them in some important way and when they really understand that and feel that because sales is an emotional activity as much as it is irrational activity, when your prospect understands and feels that you are providing something that is worth way more than the cost that you are asking them to give up, they buy, simple as that. Okay now, next idea is a very important concept that actually comes from negotiation which is the idea of a next best alternative and a next best alternative is a way to answer the question, what will your prospect do if they don't buy from you? Okay? So assume that for a second, they're not gonna buy. what are they going to go do? What are they gonna look at? Who are they going to talk to? What are all of the options that they have in their world that might solve their need? Right? Why would it be valuable to know this when you're in a sales process or in a negotiation? I was just doing a mental face palm on this because that's a question in a sales environment that I didn't ask just last week. I don't know what they're going to, what this company is going to do since they didn't elect to close the deal on something that I expected them to. So I don't know what they're going to do. So how would I sell against that? And so if I know what their plan B is, then I know how to help them choose what I want them to choose as plan A. Exactly. So if you know what their plan B is, you can make really darn sure what you're offering is better than their next best alternative and if it's better and more valuable for them to go with you than to do something else, guess what? I'm gonna go with you but if there's another competing offer out there that's better, they're probably going to do that one, right? This is actually one of the reasons that if you're running a business that relies on contractors or employees to operate the business, you do not want to be the business that pays the lowest in the area, right? 'Cause if everybody's next best alternative to working with you is quitting and going and working someplace else. Guess what? You're not gonna have a staff very long and if you do, your staff is not going to be as good as you can possibly attract for the business, right? So it's really important in every negotiation, the power lies with the ability or with the person or the party who is willing to walk away because they have a better alternative. Now, one of the very best things you can do is have a situation where there are no best next best alternatives because you are the only one that does what you do and this is an idea called exclusivity and exclusivity is just a unique offer or quality that your competitors can't match. So good example, we've we brought up Apple, the company quite a few times. If you want an iPhone, guess what? At some point, you're going to have to buy it from Apple because whether you go to an Apple Store or buy it online or go into another reseller like Best Buy or Walmart or Target or Amazon or whatever, at some point that iPhone that you have in your pocket came from Apple and Apple got paid for that and there may be other alternatives that do kind of the same thing but the iPhone has unique qualities that may make it particularly well suited to you, right? There are no other options if you want that specific thing. So having something that you offer that nobody else offers in quite the same way is one of the best ways you can overcome some of the limitations of having a next best alternative, right? Encouraging people to want something that you and only you provide makes it much easier to land a business with the ideal prospects who want what only you can provide. Now, just like there are three universal currencies. There are three dimensions to the sales or the negotiation process and there's a really great book called 3D Negotiation that covers this in great detail. Well, we're just going to talk about, when we think about the word negotiation, what comes to mind is sitting down across the table from a prospect and hashing out a deal, right? What's important to understand is that is only one part of the negotiation process and two thirds of the negotiation is already over by the time you actually sit down at the table. Okay? So the three dimensions of negotiation, the first is called set up and set up involves setting a stage for a positive outcome of the negotiation. So if you can control the environment, if you can do research in terms of what the customer or what the prospect is doing and what they want and what they're likely to ask about, all of that preparation work that happens well before you sit down across from the prospect at the negotiation table, controlling the environment and doing the research and understanding enough about the prospects situation has a huge influence on the final outcome of that negotiation. So the more advanced work that you can do, the more information that you have, the better you can prepare for the actual negotiation or the actual discussion part of the negotiation, right? The second dimension is the structure. So when you've done your research, you can do some thinking about, okay, what if, if I had my own way, if this negotiation went perfectly, what would I want the prospect to do or to decide? So what would be the ideal circumstance for you from your perspective and then based on everything you know about the prospect, what should I propose that will be best for me and also hit what the prospect wants and give them a deal that they want, right? You are finding common ground in advance and trying to propose something that's going to be really great for you and really great for the prospect, right? This is the part where you also want to try to understand what are their next best alternatives and if they don't want one thing, what's potentially an alternative that I can offer that may alleviate some of their concerns, right? So it's pre-thinking about how you want that discussion to go and then the third part is the discussion, right? You present this offer that you've created to the other party, right? So by the time you create that offer or you present that offer in the discussion, two thirds of the negotiation is already over. It's the research and the preparation that gets you to a great outcome. If you skip the first two, the discussion is not going to go as well as you would want it or expect it to go. Does that make sense? Okay, now, sometimes you do not want to be the one who is selling. You want to have somebody else selling or negotiating on your behalf. This is an idea called a buffer and a buffer is an experienced third party that is empowered to negotiate on your behalf. So think of something like professional athletes, do you think they sit down directly with the team that is interested in hiring them and hash out their own deal? No, the agents would do that. Agents do that. Lawyers do that. Why don't they do it themselves? They could save the lawyer fees and the agent fees, right? Why don't they do it themselves? 'Cause they're the experts. Yeah. They wouldn't get as good of a deal as they would working with people who know very specifically about this negotiation territory that they're dealing with, right? We hire real estate agents for the same reason. We don't know in general as much about that process as they do and by having some additional knowledge and experience, oftentimes they can get a much better deal than you can get for yourself. Now, related to this is an idea called persuasion resistance and persuasion resistance, one of the things that makes prospects uncomfortable around salespeople is the fear that there are going to be pushed into or pressured into doing something, right? Or tricked into agreeing to something that they should probably not agree to, right? And so persuasion resistance is the idea that the harder you push or the harder you try to force a sale, the more the prospect goes eh and the wall goes up and they kind of back away slowly and the more you push, the more you push, the more the wall goes up, right? And there are a couple of things that really prompt this reaction of persuasion resistance. The first is, this is a term that comes from psychology, a term called reactants. So when a prospect senses that someone is trying to compel them or force them to do something, the automatic response is to push away, right? The harder you try to compel, the more they push, right? This is one of the reasons that from a management situation, if you try to really force your employees to do something in a particular way, they push and push and push, and they finally quit, right? This is a universal phenomenon, has been identified in labs all over the place. The more you you force, the more people tend to withdraw. The second form of persuasion resistance or something that you can do to prompt persuasion resistance is signaling desperation. I really wanna close this deal. I really wanna get this done. I would do anything to work with you. Tell me what you need. Tell me what you need. I will do it because I really want this business, right? Your prospect more often than not will turn around and run away screaming, right? Because signaling desperation is telling them something is not exactly right with you and with your business. There's a reason that you are desperate for the sale and if you're desperate for the sale, it's highly likely that this is not gonna be the best thing for you or that you're not a high quality provider of this product or service or offer in some way, shape or form, right? So the more desperate you seem, the less likely you are to make the sale which is why being willing to walk away or saying or projecting confidence in that I am only interested in selling to you if this is the best fit for you, not gonna chase you, I'm not going to make unnecessary concessions. So the RFP, like the client saying, I'm not going to participate in an RFP process is a way of signaling non-desperation, right? My services are good. I deliver really high quality work. I'm not going to make concessions there. If you want to hire me, you hire me. These are the terms, right? That's why that works and the third is chasing and chasing is one of those really old, almost primal things that's lodged in the back of the human mind. There's a really great, very entertaining sales and negotiation book by Oren Klaff called Pitch Anything. He spends a lot of time talking about on the plains of Africa, if you are being chased, it's a really bad thing, right? Somethings after you and so the response is I'm being chased, runaway as fast as you possibly can, right? Versus if you are the one that is chasing something, whatever is ahead of you, you probably really, really want in some way, shape or form, right? So there's something in the back of our minds that really signals when you perceived you're being chased, you try to move away 'cause that's a threat. If you feel like you're the one chasing something, that's probably something that you want, right? Apply that to a negotiation position or a sales situation. If you feel like a salesperson is chasing you, hunting you down, you're going to have that experience of persuasion resistance, right? But if the prospect feels like they are the ones that have to convince you to spend your limited time and energy and resources serving them, providing this thing that they want, the dynamic completely flips. So reciprocation is one of the best justifications for being as generous as you possibly can in the running of your business, right? Because it helps the people that you're trying to serve, but it also makes it more likely that when you ask for the sale or when you're in a negotiating position, the other party is going to be more inclined to agree to what you propose. Generosity works, this is why cool? Couple ideas and then we'll, oh go ahead. Made me think of, you maybe even had the example in your book about going into a car dealership and they give you like a cup of coffee or something of that nature. Yes, yes. This is fascinating. Let's talk about this. So the interesting thing psychologically about reciprocation is the reciprocation does not necessarily need to be at the same scale as the original gift, right? So Robert Cialdini is a psychologist who does lots of studies about how this works and they did a study of car dealerships and when you walk into a dealership into the office area, do you want some coffee? Do you want some water? We have some cookies. Can I get you anything? Like small gifts. Like a cup of coffee may cost the dealership 10 cents, right? Super, super, not a huge expenditure of resources by any sense. So by offering that gift, the person is more likely to purchase a car which is an expenditure of thousands, sometimes 10 of thousands of Dollars. They're more likely to get extended insurance. They're more likely to buy upgrades to the car. They're more likely to make this very large outlay of money because of a very small gift given by the salesperson at the beginning, right? So this scale as just being generous in lots of small ways can have outsized returns when it comes to the ways people tend to reciprocate, right? And there are ways to use this for very good reasons and there are ways to go really dark side with this stuff too, right? This is one of the things you have to be very careful about but it's very, very true, people reciprocate when you are generous with them and that idea is a damaging admission and a damaging admission means acknowledging potential risks and offer you may have talking about the ways or the reasons that something may not be right for you or for the prospect that you're discussing and what's interesting is making a damaging admission can actually increase the prospects trust that you are being straightforward and acting in their best interest, right? No offer is perfect, ever will be. Even for your ideal customers. There may be something about that offer that is not ideal. That is not perfect. That is a little rough, right? As a sales person, it's really enticing to try to gloss over that stuff, right? Frame it out of the picture, not talk about it but guess what? They're gonna see it and if you as a salesperson are comfortable talking about that with them, then that increases the trust that they have in you, that you are giving them all of the information that they need to make a good decision and that you are actually operating in their best interests, right? Sometimes the drawbacks are minor, not a huge deal, not a deal breaker but important to know. So as a salesperson highlighting for them some of the reasons this is not ideal actually works in your favor, makes it more likely that a sale is going to take place and not less.
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