In many organizations, the relationship between the pricing team, deals desk team and the sales team ranges from collaborative, to healthy tension, to downright adversarial. Like almost everything, getting to the bottom of it is all in the perspective. I’ve led teams in CPQ and pricing software, held sales roles, as well as pricing and consulting roles and I’ve seen this through multiple lenses. With this experience, I thought it would be valuable to dissect why pricing matters to sales.
First, there’s the sales equation
When I was in sales operations, I learned the key equation that impacts sales performance:
Revenue = (Number of Sales Reps) * (Average Deal Size) * (Win Rates) * (# of Deals)
# of Deals = (2000 hours per year / # hours spent to close each deal)
Then, it’s seeing that pricing is a critical part of revenue and profit
In most sales reps’ minds, the possibility of losing a deal by asking for a higher price outweighs the benefit. To change that, it’s critical that pricing professionals recommend fact-based guidance that reps can find value with decision support “peer group” analysis.
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Pricing is also the most crucial aspect of contribution margin to a deal, on which sales leaders, and in some cases, reps are increasingly compensated. Pricing guidance and automation also increase sales rep efficiency and effectiveness, enabling accurate and fast quoting, reducing deal cycle times significantly and can increase win rates. Pricing solutions can also offer upsell and cross sell suggestions to increase deal sizes and thus revenue and profit.
So what can you do better?
Organizations can execute on several tactics and strategies. Pricing teams should provide target price guidance to sales that is easy to explain and understand. Automating approvals within certain thresholds of deal size, target price realization, margin, etc. can speed quote times, reduce admin and increase win rates. It’s helpful to provide visual support with real world data to back up the target price. Sales incentives should align with corporate goals, which usually means moving away from volume and toward revenue, contribution margin and even price realization.
In short, give sales reps incentives and tools to understand, explain and confidently ask for price. This may sound like a “no brainer” but in reality only about 15% of organizations have the people, process and systems in a manner that approaches world class. When done right, this can massively increase both revenue and profits.
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This is why pricing matters to sales and sales leaders
Pricing guidance and automation directly impact average deal size, including cross sell and up sell recommendations. The proper pricing guidance also impacts win rates. In fact, faster cycle times have been shown to increase win rates, especially the first to respond. This same direction from the pricing arm of your organization affects the number of deals, and also reduces the admin work of getting price approved, out to customer, and into the ordering system.
If you are on the adversarial side of the pricing and sales relationship, think about that in your next interaction. Especially in these unprecedented times of crisis, ensuring a good value exchange between sales and customers will be key in getting through them and putting you in a position to expand when the bull market comes back.
