Why You Need to Turn Down That Low Ball Price
This guest post was contributed by Barry Moltz, Small Business Expert.
You have seen this business scenario played out many different times before:
You send a proposal to a promising small business client where you know your solution can really help them. Their first response is that your price is too expensive. They offer to work with you at a low ball price. The problem is that you want the work. More accurately, you need the work. But you are afraid that you can’t make enough profit at that price to support yourself and your company. What should you do?
First, determine if this is the type of customer that can be profitable in long-term. There is nothing wrong with taking the first job at a lower (less profitable) price if you can build them into a regular customer at a higher profit margin when they learn your value. However, if this is a “one and done” job to keep cash coming in the door, turn down this low ball price. This is because you will be wasting your time servicing this customer at little or no profit when you could be marketing to a new customer at the higher price where a profit can be made that will actually build your business. Remember, in most cases, you never need customers that are not profitable.
Alternatively, counteroffer to the prospect that you can do part of the proposed job at the lower price. It is important to cut some things out of the original proposal so less is offered for less money. In this way, you have lowered your price, but also lowered your level of service or product and hopefully boosted the profit.
There is also a sales technique called “low-ball” where you agree to offer a low price in order to “first attract a buyer, but then add on additional expenses to make the purchase less of a bargain than originally thought.” This is the technique often used in car sales when the salesperson quotes a low price for the car, but then tacks on options to end up with a much higher price. This is also increasingly used in insurance, airplane tickets, and cable companies. I don’t subscribe to this technique, but I have seen it used successfully many times.
Instead, I believe that all customers will pay more for value to solve their pain. There are many brands like Apple in the marketplace that can charge a premium because of perceived value. One way to boost your price is to ask the prospect, “what would the results need to be for you to pay my original price in the proposal?” In this case, you are building value instead of cutting services. In addition, you know what the prospect values and is willing to pay more for.
If they are offering a low ball price then either they don’t have the pain your service solves or they don’t have the money to solve it. Neither are your perfect or targeted customer for the business. Low ball price offers from a prospect is an indication that you are either talking to the wrong prospects (and decision maker) or your solution is not as valuable as you think it is to those you are currently marketing.
Remember, you need to have enough confidence in your business and yourself to walk away from a prospect where you will make no profit in the long run. While this can take courage and discipline, it is the only way to build a sustainable company.
What do you do when you get a low ball offer?
Barry Moltz is a Small Business Expert, Author, and Radio Talk Show Host. He gets business owners growing again by unlocking their long forgotten potential. As a small business expert with decades of entrepreneurial experience in his own business ventures as well as consulting countless other entrepreneurs, Barry has discovered the formula to get stuck business owners unstuck and marching forward. Barry applies simple, strategic steps to facilitate change.