Elevate Sales Rep Performance
Pricing technology can help salespeople improve their pricing performance
By Eric Hills
It’s common for many distributors to leave pricing decisions largely up to their salespeople. However, when companies rely solely on their sales reps to make the pricing decisions, money is left on the table and growth strategies underperform. Parallel attempts to set prices centrally are typically unsuccessful because pricing is often set at a very high level, making actual list or matrix prices irrelevant to nearly every actual deal. These manual attempts to provide guidance are simply not granular enough to account for all of the complexity of the B2B selling environment.
Accurately Measuring Performance
Even though companies aren’t providing sales reps with market-aligned price guidance, they still attempt to evaluate sales rep performance without a quantitative benchmark for policy compliance and profitability metrics. This leads to an unfair comparison and evaluation of sales rep performance because market mix within territories is very diverse. The market mix of customer types, competitors, cost and other margin drivers varies from one territory or region to another, which results in the need to normalize performance measures.
With that in mind, many distributors believe that evaluating sales reps based on a margin target is a better solution. It’s a common belief that quality pricing behavior is guaranteed when salespeople have a financial incentive to maximize margins. However, salespeople frequently overestimate the personal risks associated with trying to get more margin dollars out of a deal. They often believe that the positive compensation benefit of getting additional margin is overshadowed by the negative compensation impact of losing the deal altogether. This “something is better than nothing” dynamic causes salespeople to play it much safer than they really need to, leaving money on the table in the process.
One of the primary reasons salespeople feel compelled to play it safe is the lack of contextual guidance specific to each selling circumstance in the form of a deal envelope or price range. If companies are aiming for a 25 percent margin on average, some deals may have a 30 percent margin and some may have a 20 percent margin. The guidance must be aligned to the specific circumstance and account for the market mix.
Elevating Sales Rep Performance
With the availability of advanced price optimization solutions, companies can now deliver pricing guidance to reps that is more accurate and specific to each selling circumstance. These optimized prices, or target prices, are already differentiated as a function of customer and product mix. Optimized price guidance enables a fair measure to evaluate sales rep performance using a price realization metric, or the percent attainment as a ratio of the target price. The price realization metric demonstrates how sales reps are doing and the areas that need improvement. B2B companies can now compare reps and focus on elevating everyone’s performance, even though territory, customer and product mixes differ.
There are several other factors that need to be considered when measuring price realization at the sales rep level. B2B companies can’t fairly compare two sales reps to each other on price or margin if they don’t somehow account for the mix of products sold and customers. Furthermore, it’s nearly impossible for managers to have an objective conversation with sales reps about price because managers often lack the factual basis to say what the price should have been in comparison to what the sales rep charged for a particular deal. However, deal-specific, market-aligned price guidance enables managers to measure the effectiveness of the pricing decisions that sales reps make on a regular basis — a task that was impossible before — while driving overall margin benefit.
Successful change management
The challenge many companies face is how to get sales reps to follow price guidance. They have limited experience with how to get salespeople to trust it, given that previous prices lacked the accuracy and specificity necessary for each deal. Companies that have been successful gaining sales force adoption take a carrot, rather than stick, approach by demonstrating small, incremental wins and focusing on price realization goals, rather than compliance.
Sales reps are more likely to rely on accurate pricing guidance once they understand that it will keep them from either charging too much or walking away from what would have been a fair deal. Following the guidance also can reduce the amount of rogue discounting.
In order to enhance price guidance adoption, B2B companies also must ensure that the guidance is easily accessible to their sales teams. If companies are already using a price quoting tool then the pricing guidance should be available in the same quoting tool that sales reps are already familiar with. Additionally, the guidance can be presented as a range of prices instead of a single, required price point, which enables sales reps to have more discretion when choosing a price and feel more confident when offering that price.
For example, when rolling out new price guidance to several hundred branches, an equipment rental company focused its training sessions on the incremental value of pricing each customer at their target price and how it positively impacted sales commissions. New prices were delivered in the company’s existing quoting system to eliminate process changes. They also clearly enumerated the annualized benefit, leveraging a well-known budget number: the annual corporate travel and entertainment budget, which would directly impact the sales reps through a sales performance incentive fund (SPIF).
The defined SPIF was a regional contest based on target price attainment for a six-month period after rollout. Adoption of the new price guidance exceeded 85 percent and feedback from the sales team was favorable with reports showing improved confidence in the pricing guidance and improved productivity due to much shorter quote turnaround times. This resulted in increased win-rates and improved customer satisfaction, and the company saw record improvement in realized prices.
As the example illustrates, today’s pricing technology allows B2B companies to accurately evaluate sales reps and improve their pricing performance without stripping salespeople of authority and control. In this new paradigm, pricing decisions are still made in the field, but the technology-enabled model arms salespeople with extremely accurate, deal-specific pricing recommendations. Ultimately, this results in better
prices and higher margins.
Eric Hills leads the marketing and sales teams for Zilliant with more than 20 years of experience in the design and delivery of innovative front office technologies.
This article originally appeared in the Sept./Oct. 2013 issue of Industrial Supply magazine. Copyright 2013, Direct Business Media.
INDUSTRIAL SUPPLY MAGAZINE
The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.
