Effective selling is about getting involved in activities that bring home the money. Your whole plan as you set up your business is to eventually generate sales because you satisfy a need. You do this by communicating your offering in a language your client can understand and relate to. They will only buy from you if they can see themselves benefit from taking up your offer.
The client has to let you into their world for you to have this kind of influence on them whether they meet you physically or just through your product on the supermarket shelf. How you do this is by creating a picture they can relate to and trust in your branding, packaging, and marketing material and, assuring them when they are ready to buy.
Having made the decision to buy, you want to ensure both you and your client do not have to go through the process again. The client should be able to benefit from their initial buy so you can cross or upsell to them. This whole process will take strategic thinking. Continuously bring clients into your sales funnel, help them make the decision to buy, and supply them with new products and services that will enhance their experience.
a. Improving Your Sales
Below are some things you can do to enhance this whole process:
i) Prepare: Before you start selling, get prepared. Have the right sales material, find out as much as you can about your target client, and tailor your presentation to address their need.
ii) Start with your existing database: If you have a database of people you have been working with, start from there. They are already aware of what you have, trust you, and are most likely to recommend you even if they do not need the product at the time.
iii) Cross-sell: Do not leave money on the table. The best time to sell is when the client has opened their wallet to buy. Tell them of your other products that will add value to them.
iv) Be persistent: Sometimes people do not make the decision to buy immediately. They may need to mull things over or wait till they have the money to purchase. Be persistent in following up interested clients so you are there, and not your competition, when they finally make the decision to buy.
v) Create your sales material from the prospect’s perspective: This means answering their questions before they ask them in your presentation of brochures or sales pitch. This should be done in their language. If you are not familiar with the local language, ensure you get someone who is.
vi) Use visuals: A picture is worth a thousand words. A good picture will sell much more than a full page of prose. If you use people, make sure they look like your target audience and represent them or what they aspire to be, so your prospects can relate to the advert.
vii) Have a conversation: When making a sales call, have a conversation. Don’t talk too much or too little or interrogate the client like you are in court. A natural conversation will give you the information you need to help the client make a good decision. When you talk too much you do not give the client the chance to tell you what they want to address and why they are shopping for a product or service. When you do not talk you do not get to inform your client of the benefits of your service or product.
viii) Track sales process and results: This will let you know where the bottlenecks are. For example, if you have a large number of pre-qualified prospects who do not want to give you a meeting after the 1st call, then maybe you should review what you do or say during the call.
ix) Do not sell during a phone call: Focus on getting an appointment. This way the prospect may have the opportunity to experience the product or service, and you have the opportunity to build trust.
x) Make the impact clear: Make the impact of using your product or service clear. This can be done by giving references and data on successful users of your product or proof from scientific research. Apply this to the client’s situation so you can paint a picture of the new reality the client will be able to enjoy.
xi) Build a foundation of trust: People will buy from you because they trust you. When they hear from you for the first time it might be in your tone, and whether you seem genuinely interested in addressing their need. Later, as they get to know you, it will be based on whether you do and say what you say you are going to, and if your service or product serves their need. Manage expectations so that you do not overpromise and under deliver.
xii) Create a sense of urgency: You can create urgency by giving a special discount for a period if the client makes a purchase decision in the period stipulated. Do this strictly if you intend to keep the deadlines you want to give the client, otherwise, you will build a negative reputation.
xiii) Be consistent in lead generation: Have a system that you can continually work on and refine to generate new leads. With time, this will result in a steady flow of business as they go through your sales funnel.
b. Pricing and billing for service businesses
As a first time entrepreneur, it may be difficult for you to come up with pricing, especially if there are no set standards in your industry. Some pricing structures are industry-specific, however, if you are looking to come up with a disruptive model, be open to all pricing structures and see how they could impact your business.
You will discover that it is illegal to discuss pricing online or offline as it stops healthy competition and innovation by resulting in price-fixing. However, it is alright to discuss pricing guidelines. If everyone discussed their prices – especially where bidding projects are concerned – it would mean they can all agree on a price fix and the client will not benefit from the true worth of service. When you set your price irrespective of competitor prices while following good guidelines, you are able to think objectively about what you offer and at what price.
Service business pricing guidelines
Before setting prices for your service company, get an overall understanding of what drives the pricing and billing process in your industry. If you are offering services, the costs you face include salaries, overheads and other consumables that should be covered in your fees. It is based on this that you come up with your hourly billing rate which you can use as a basis for your quotation. Below is the breakdown:
Calculating the hourly billing rate
This has 4 key components:
(1) Desired annual salary; plus
(2) Overheads – consumables and fixed costs; plus
(3) Desire profit (calculated at 20 – 50 percent of (1)+(2) )
(4) Total divided by the number of billable hours you expect in a year
NOTES:
(1) Desired annual salary refers to the salary you would like to earn in a year. You calculate this by getting your monthly desired take-home salary and multiply it by twelve to get the annual desired salary.
(2) Overheads include all other costs that you need to take care of. If you have employees, this would include their salaries plus water, electricity, equipment, and other consumables.
(3) Desired profit is the markup you expect from your work.
(4) As you do your work, there are some activities that you cannot bill to the client like marketing and administration activities. Then there is time spent working on your client’s project or on phone calls with them. These are billable hours. You may want to give a bonus when the time is below 20 mins.
Now that you have your hourly billing rate, let’s have a look at different ways you can price your services.
Flat Fee Billing
Flat fee billing can be used when a client asks you to quote for a project based on the work to be done. A typical request for proposal (RFP) gives detailed terms of reference (TOR) stipulating the scope of work. The fee will be a total of the hours you expect to do the job, consumables required, and facilitation fees. You then quote this to your client, giving a cost breakdown.
Retainer Fees
Retainers are ongoing fees charged by some professions like lawyers, accountants, and HR consultants. This works well when your client has a steady flow of predetermined work. Estimate the maximum and the minimum number of hours you expect to do the job and work on the average cost as your retainer fees. To break it down:
(1) Minimum No. of hours; plus
(2) Maximum No. of hours
(3) Divide by 2; multiply by
(4) Hourly rate
Market-Based Rates
Sometimes, the easiest way to go about coming up with fees is to go with the market rate. Find out what competitors are charging and charge an average of what is in the market. Alternatively, take your average annual fees and add on it if it is lower than the average market rate. i.e.
Calculate average market rate e.g. USD100 < average market rate USD 150
You can add on your average, say USD 25, so your new fee will be USD 125
Bidding and Creating Proposals
Some private businesses and the government will require that you bid for business projects. To bid effectively for a project, you will need to understand the scope of the project. The bid document provided by the client has details of the project, however, should you have questions there is always an opportunity to clarify details with the client. You reply to the bid using a proposal that shows how you intend to address the client’s bid request and what will be the cost for doing so.
Structure of the proposal: The structure of a proposal will vary depending on the organization. Some organizations give you a template to work with while others let you structure one as you please. There are two main parts in a proposal – the technical and financial part. In some instances, you may be asked to submit the documents bound separately. Below are the key components of each:
Technical Proposal
– Overview: gives your understanding of the project
– Objectives: gives your understanding of the purpose and goals of the project
– Approach to carrying out the project: shows how you will tackle the project, and if you will outsource aspects of the project
– Deliverables: these are the things that you will give to the client to mark the completion of different milestones until you complete the project. These will include progress reports or a finished building if you are in construction.
– Timelines: the schedule of work given together with a Gantt chart to help visualize the activities.
– Success factors: highlights the responsibilities on the part of both yourself and the client that will be crucial to the success of the project
– Conclusion: A summary of everything detailed above, and a mention of similar projects you have carried out
Financial Proposal
– Expenses: a listing of all expenses and who will be covering them, e.g. travel expenses are often covered by the client or maybe reimbursed unless otherwise indicated in the call for proposals. Expenses can be broken down per milestone or phase of the project to help in understanding and clarifying matters.
– Fees: total cost you are charging and associated taxes e.g. VAT
– Payment Terms: how you expect to be paid and at what time e.g. 50 percent down
Most projects that request for bids are large and proposals may range from a few pages to hundreds of pages. For you to be able to make realistic estimates, break down the project to manageable pieces, and allocate time for each aspect of the project. It is easier to allocate time to smaller activities than a whole project. If the project is reasonably big you may want to discount your hourly rate. Be objective about how you come up with the discount.
Consider the different expenses that you will be facing. For expenses that pertain to travel during the project, per diems or international calls are covered by the client while you cover the costs that you would normally face when doing business. However, this is not a hard and fast rule and is dependent on the industry or profession.
Billing the client for expenses should be discussed before the contract is signed, to avoid surprises. The structure of quoting for these can be prepared in four ways.
- the expense can be capped e.g. travel expenses reimbursed to USD 1000, or
- can be open e.g. travel expenses will be reimbursed, or
- can be paid for by the client e.g. client will pay travel expenses, or
- the client pays a set amount for the expense e.g. client will pay USD 1000 to cover travel expenses. In this case, if you spend more you would cover the difference and if you spend less you keep the difference.
c. Pricing for businesses selling products
This is one of the most important business decisions you make. When establishing prices for your products, your business priorities will be a major determinant of what prices you set. You also have a number of factors coming into play: demand for your products, the reaction of the competition when you enter the market and of course the profit you would like to make. Remember there are costs of running your business that need to be covered within your pricing.
There are different ways of setting pricing, depending on how you want to position the product and the outlets you will be using to distribute the product. These can be high, middle, or low end. High-cost outlets will focus on high quality and exclusive products. Examples are exclusive boutique stores, beauty shops, or restaurants. They may also stock rare products that are difficult to find in the market.
Middle range outlets will focus on a wide range of reasonably priced products and a number of high-quality grocery items. However, the pricing does not justify the stocking of exclusive products or rare items. Low-end outlets tend to stock budget items. The products often are fast-moving mass-produced items.
Having considered how you want to position your product, here are some ways you could set your prices:
Cost Up Pricing
In this method of pricing, you work out the cost of production or purchase and transport and mark-up your price to cover this cost and make a profit. Example:
| Cost of materials | $50.00 |
| + Cost of labor | $30.00 |
| + Overhead | $40.00 |
| = Total cost | $120.00 |
| + Desired profit (20 percent on sales) | $30.00 |
| = Required sale price | $150.00 |
Some industries have a standard mark-up price and you can find this out from the industry association. Generally, as you interact with peers, the finer details of how they work out their pricing will become evident. Remember you cannot openly discuss prices but can discuss how this is arrived at.
Sometimes the manufacturer recommends a sales price. This acts as a guide and you can choose to follow it depending on what other services you are offering. e.g. most soft drinks have a recommended price however in an exclusive restaurant the prices can be much higher. If you are producing the products, setting the wholesale and retail prices means you will be able to recommend the rates. This can help increase the volume of sales depending on the rate you set. Consider distribution costs and demand for the product.
Price-Down Pricing
In this method of pricing, you decide on a price based on the market rate and work your way down to what the cost of production or getting the goods to the market should be if you are to be profitable.
Competitive Pricing
In this method of pricing, the industry has a set rate. For example, if in your industry everyone is charging USD 10 for a standard meal, then you will be expected to charge the same unless you have a good reason not to.
Tiered Pricing
With tiered pricing, you can add up products and services after the initial purchase to increase your bottom line. This happens when you offer attractive additional accessories or services that are charged separately thus increasing your bottom line. For example, when selling cars you can add car insurance to boost customer convenience and add to your bottom line.
d. Increasing your profitability
There are two ways to increase the profitability of your business – either increase your prices or lower your costs. If you choose to increase your prices, ensure you have high-quality products, improve the quality of your customer services, and ensure the offices are in an exclusive area patronized by clients who would not be concerned about the price.
On the other hand, if you choose to cut costs then your physical location ought to be in a cheaper location, offer basic services – remove most of the frills in your offering – and, if possible, automate most of your customer service and production processes so as to cut down on production and administrative costs.
Market dynamics keep changing so even after determining your prices you will periodically need to review your prices. Do not review your prices too frequently as this will discourage your customers.
Below are some instances when it makes sense to review your prices:
- during inflation or recession;
- launching a new product or product line;
- if production costs change;
- when entering a new market;
- when competitors change their prices;
- if your sales strategy changes; or
- if your customers are making more money because of your product
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