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Topics Covered: <a href='/resources/search/?query=Sales Management'>Sales Management</a>
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Sales reps are operating in a market that’s more competitive than ever; where buyers have more power than ever before. Easily accessible information online means your customers not only know the ins and outs of your products (and your competitors’ products), they can also easily find tips on getting the best price. All of which means that now more than ever, sales reps need to have redlines: non-negotiables that allow them to keep their profit margins.

All too often, sales reps flinch the moment buyer mentions “another bid”. If you do this too often, you’re seriously damaging your profit margins and your company’s bottom line. Here’s why you need to have redlines and how to negotiate to maintain your profit margins.

Reservation Price or Redline

Before you go into any negotiation, make sure you have a price AND a reservation price. Think of your reservation price as a redline: a line that you simply will not cross. Going into negotiations with this mindset is important because it gives you some wiggle room with the customer but means you won’t cave and reduce the price, and your profit margin, too far.

Be disciplined. It’s incredibly tough to walk away from a low-margin sale but if you do it for one customer, others will think they can walk all over you too. Plus remember, many customers are simply pulling the old “walk away” haggling trick where they pretend they’re not willing to pay the price and walk away so the market vendor will call them back and lower the cost. This trick is as old as the hills! Let them walk away; if you’ve done a great job of demonstrating how your product is superior and truly adds value, they will be back.

Stop Negotiating with Yourself

Another way to keep clear of your redlines and keep your profit margins healthy is to let the customer talk more than you. If you don’t do that, you often end up negotiating with (and undercutting) yourself. The old saying goes, “He (or she!) who speaks first loses” and there’s a lot of wisdom in this. All too often in negotiations, we talk too much, over-justify our position and end up talking ourselves out of a good deal. The art of silence in negotiations takes confidence but done right it can be highly effective: your buyer will find the need to fill the silences with a climb down.

How does this work in practice? If you’ve set a price and they ask you to do better, don’t instantly slice a few percentage points off your profit. Rather, turn the question around and ask “I’ve shown you how my product can do X, Y and Z for you, what do you think is a fair price for that kind of quality?” Then hold your tongue and let them do the talking. Most of the time, people do not like to appear cheap or give the impression that they don’t care about quality. It’s likely that the price they come back with won’t be far off one with which you feel comfortable.

Profit margins are important. If you become the type of salesperson who is continually going back to your manager asking for a “special price” for an “important customer,” not only is this bad for business but it paints you as a poor negotiator. Redlines are important therefore; not only do they help you protect your profit margin - they help you protect and build your reputation as a great sales rep too.

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