Step 8: Price New Business with Clarity Before You Make the Offer

Originally written by Dan Doescher. Updated by Tom Doescher.

Note: If you missed the introduction or earlier steps in this series of blog posts, please click here to read it.

A nickname I earned from long, hard nights in places only the brave would dare to trod was Disco Danny.

I admit it. I love all kinds of music, even disco.

At the risk of dating, or, worse yet, downright outdating — myself, I am reminded of a song by The Contours of Motown Records: “First I Look At The Purse.”

We all know it. We have all done it.

You get the proposal, and where is the first place you turn? To the page where you can check the price.

Given its importance, the last subject of this blog series is pricing — an area where much thought is required.

Have you ever thought about why pricing is so important?

Whether you are maximizing profits as a business or services provided as a nonprofit, there are competing forces for the same dollar.

Generally, that type of competition can result in a win-lose situation.

While that is not necessarily bad, focusing instead on win-win possibilities is a worthy endeavor.

Consider what might happen when pricing is handled well:

• New customers or clients, including owners and users, believe their need has been met — or better yet, exceeded — for a fair price.

• You build trust with new relationships, and those relationships may bring additional opportunities with them.

• A win-win situation creates the potential for a booster and perhaps future referrals.

• You, including owners and those involved in or impacted by the sale, believe the price is fair.

That last point matters. If the customer thinks the price is fair but your team knows the work will be unprofitable, frustration will follow. If your team thinks the price is fair but the customer feels surprised, confused, or oversold, trust may be damaged.

Pricing is not just math. Pricing is communication, expectations, trust, positioning, and discipline.

The pitfalls of not having guidelines can cause real harm, and often lead to lose-lose results. Try to avoid frustrating the following players:

Your hunters, due to lack of clarity in the pricing process — including failing to specify their particular role, or lack thereof, as appropriate.

Those who have pricing responsibility, by interjecting 20/20 hindsight criticisms.

Yourself, by agreeing to take on work that has no profit, or worse yet, work that has no marginal cash contribution.

This is especially important for owner-operated businesses. Many owners have felt the pressure of wanting to win new business and then regretting the price later. Sometimes the work is too thin. Sometimes the customer requires more support than expected. Sometimes the company wins the job but loses capacity, focus, and margin.

That is not healthy growth.

Guidelines are like plans. They are essential, but they need to be viewed as subject to change if and when new information is compelling enough to warrant a change.

Once you have your pricing guidelines, hold them with an open hand rather than a clenched fist.

That does not mean pricing should be random. It means your team should understand the normal boundaries, while also having a clear process for exceptions.

Establish a process for pricing outside the boundaries.

• Who has the authority?

• Under what circumstances?

• How will the decision be documented?

• What are we trying to accomplish?

The reasons for pricing outside the normal boundaries will vary, but they may include:

• Underpricing when trying to enter a new market.

• Underpricing to fill capacity.

• Underpricing to establish a new relationship.

• Overpricing because you feel you need to submit a proposal for reasons other than profit, but you do not really want the work.

• Overpricing because you are at capacity and would need outsourcing help if you were successful in obtaining the bid.

The key is to be intentional.

There is a big difference between strategic underpricing and desperate discounting. There is also a big difference between strategic premium pricing and simply guessing high.

Whenever you are not successful, it is always helpful to try to understand why. Learning provides useful market data that may help with future proposals.

Did you lose because of price? Did you lose because the prospect did not understand your value? Did you lose because you were not a strong fit? Did you lose because the competition had a stronger relationship? Did you lose because doing nothing was easier for the prospect?

That information matters.

Over time, it can help your team sharpen positioning, improve qualification, refine pricing, and pursue better-fit opportunities.

So, do you — and equally important, does your team — have guidelines for pricing new business opportunities?

• Do your hunters understand their role in the pricing process?

• Do your pricing decision-makers understand the strategy behind the opportunity?

• Do you know when you are willing to bend and when you are not?

• Are you protecting both the customer relationship and the economics of your business?

Singing from the same song sheet may produce just the tune you want to hear.

By the way, just for the “record,” the 1962 release of “First I Look At The Purse” came many years before my disco days of the ’70s.

Thanks for following the series. It has been a privilege and a blast to do.