In many cases, we see sales teams compensated based on the volume they bring in without much focus on pricing. Contrastly, pricing teams are compensated based on improved margins. This creates a natural tension.
So how can your organization improve alignment between pricing and sales teams to ensure business goals are met? Lots of our clients have had similar concerns, so here, we answer frequently asked questions to bring your pricing and sales teams together working toward improved profits and overall success.
Q: What does alignment between pricing and sales look like?
A: Often, sales reps offer lower prices or discounts because they feel they have to in order to get the sale. Those responsible for pricing can change this by offering a price range where sales are likely to be most successful. These “guardrails” establish minimum and maximum prices or margins. Sales staff can then bounce between these guardrails as appropriate without dipping below ideal margins.
Remember, a good pricing team provides those guardrails and empowers the sales team. Ultimately, you want sales reps to worry less about what the price is and instead feel good about asking for it. When sales reps understand the logic behind the pricing, they feel more confident.
When developed appropriately, a good pricing system will offer success about 80 percent of the time, while the other 20 percent will be managing exceptions. When the two teams don’t work together to understand and communicate pricing, you may experience exceptions 80 percent of time and, most likely, neither sales goals nor margin goals are being met.
Q: What’s the first step toward alignment?
A: It's important early on to figure out where the pricing power is in an organization. Typically, in organizations with a list and discount structure (operating using a published catalog), the marketing team plays a key role in pricing. The sales team can then help identify key accounts and what discounts or pricing is right for them. There is a relationship between marketing and sales.
However, when a company sells custom products, there will be a lot of quotation work. This gives the sales team a lot of pricing power.
Once you understand the pricing power dynamic, you can start understanding how their goals align.
Q: How do we get them to start seeing eye-to-eye?
A: Ultimately, both teams are paid to make the company more money. That's an easy rallying point to build off of: ”We all want to do what’s best for the company.”
Taking it one step further, you can use data and examples to illustrate the importance of alignment. Find ways to show your teams that discount procedures or quotes are out of line with the company’s goals for improving profits. For example, ask basic questions such as, “Who should receive better pricing—a big customer or a small customer?” This helps put pricing conversations into perspective.
Q: Why is alignment between these two teams so important?
A: It is extremely difficult for an organization to be effective if there isn't alignment between the people in front of the customer and the people helping them make pricing decisions. Getting to a place where the rules of engagement are clearly defined is paramount.
Companies that often perform the best have a clear alignment and strategy between the pricing team and the sales team. They view each other as a partner: One team is not looking for approval from the other; they are working together to get the right price for each customer.
This isn’t easy. Getting to a decision, it's not necessarily transparent. Without the right technology, without the right tools and without facilitated conversations, it can cause pain points. Often companies give up, lose profitability and leave money on the table.
If you are ready to help your sales team execute price changes effectively, check out this free on-demand webinar today.