Sales Audit · Sales Leadership · Sales Management · Sales Strategy

Average Deal Size Dropped by 25% Last Year

It’s been reported recently that the average B2B deal size dropped by 25% in 2013, this is according to a summary of the CSO Insights ‘Sales Performance Optimisation Study’ (www.csoinsights.com) for B2B sales in this months edition of ‘Winning Edge’ (www.ismm.co.uk)

Is that true for your business?

The summary report states that this is probably due to more demanding buyers and higher levels of discounting, but this is still a shockingly big change when you consider the supposed increase in economic confidence during the second half of 2013.

They also claim that their figures may be inadvertently affected due to the smaller initial deals that some industry sectors offer to hook buyers in, cloud based systems sales, for example.

Undoubtedly the last few years made Buyers much more commercially astute, and the recent economic stresses have made it more acceptable to ask for discounts and negotiate harder…however a 25% drop in average order value is still a major hit, because, after all, that 25% drop is coming straight off your profit line.

The perennial question is – what’s your company policy for discounting or selling below agreed rates?

I hate rate card pricing…in my experience it does far more harm that good, devalues the sales interaction and unless you job is to sell a pure commodity then a rate card is tantamount to dismissing the sales function and sending out a catalogue on an eshot.

So, having got that out of the way…back to the question – to discount or not to discount?

Rule if thumb – here’s a few questions for you to think about:

If you discount what do you get back?

Testimonials maybe? 5 acceptable referrals, a bigger order, a commitment to sign up for a longer period? If you’re not getting something back that’s of value to you, why would you agree a discount?

Too many poorly trained sales people will discount simply because the buyer asked – it’s a poor policy and can create a negative impression with the buyer, who could think the sales person was trying it on with the first price.

If you do discount you MUST get something back that is of value to you.

If you discount – what might that do to your brand? 

Your brand has value – if you want to go down the ‘cheapest on the block’ route then think about how that will impact on your business, what you might need to consider regarding volume sales, do you have the capacity to sell cheaper (on the understanding that volumes may increase) without it impacting on resources and operations?

How much more would you need to sell at the revised rates to keep the firm financially viable and stable? What about cash flow?

If orders flood in due to cheaper rates can you keep up? What’s your limiting factor?

Don’t make the mistake of thinking I’m saying don’t discount…just think the implications though and make it a strategic and commercially viable decision rather than an ‘on the fly’ decision that your sales team make in the field and you find out about when the orders get processed and shipped….or rejected by finance/operations

If you discount – what impact might that have on your customers that are paying full price?

Nothing worse than that feeling of being cheated, fooled, taken for a mug is there? Trust gone. Goodwill gone. Relationship gone…if you value your existing full price customers and clients, then think very carefully about how you will manage the conversation that may well crop up next time, if there is a next time, they order from you…

If you discount – what does that do to the psyche of the sales team?

I’ve worked with too many sales teams that were happy to give the product/service away for near free, and the management teams let them do it…primarily because they fear that their product’s not as good as the competitors. This is a sure way to erode the confidence of the sales team, kill the brand and send the company into free fall…Hard to recover from on all fronts, not all firms do recover.

Why would you even discount at all? Lots of reasons. 

  • The company let them do it…That’s what everyone else was doing.. so it became the norm
  • They had no pride in the product or service
  • They didn’t understand business
  • They thought the competitors were bigger, stronger, better than they actually were – they got psyched out by their competitors

Why do I think discounting is a strategic decision and not a choice for the sales person to make…

SEVERAL REASONS:

To discount or not to discount, and if so, by how much has consequences that may not be felt until it’s too late.

Discounting is an insidious activity.

A little discount here, a small discount over there, and suddenly the average order value is a fraction of what it was, what it should be and what it could be.

And if you’ve ever lowered your price to get more sales…you know that doesn’t always work out for you either, you just meet a different kind of buyer who has different issues.

Also, a propensity to discount is an indicator that all is not good in the sales team.

One of my most valuable metrics I monitor daily is average order value. It tells me everything I need to know about the team, the managers, the market and the business we’re in.

Discount or not to discount? There are enough examples of firms that are permanently ‘discounting’ to know that it can work, there are also enough instances where a firm that offers extensive discounts struggles to recover its initial pricing position.

Either way, discount or not, it has to be a strategic decision – not a lazy sales team decision made in the moment to satisfy a demanding and cute buyer.

Happy Selling

Carol

carol@mortonkyle.com

0779 002 1885

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