Ask HN: Your prices are too high

Without knowing what industry you operate in - Except if making a commodity product/service and have a cost advantage to competition (i assume you are not) you need to price @ and consequentially sell value not cost.

My experience in selling value: You need to: 1) Understand and quantify opportunity cost for client in not working with you (Difference in dollar amount profit for client between working with you and alternative options: 1)working with competitor, 2)using alternate solution for the same problem - status quo solution if your product/service involves an operational change)- the value of your product is that number: If positive be explicit about it.

2) Sell a relationship not a service/product ie: make the person in front of you feel better off in working with you than not through long term benefits. To do this understand their own KPIs other than profit (first point on that) and issues (time spent doing stuff they or their staff hate doing) in doing their job - make them understand that a relationship with you will make their job easier based on how you improve KPIs and/or eliminate issues in the long run.

Other points: - Listen and adapt to every client - none two are the same - first question you should ask yourself: "Who do I have in front of me" - you will have a few dozens types of client behaviors not more - adapt accordingly to address points 1 and 2.

- Don't rush sales - understand the two points above very well and go through them with each of your clients patiently.

- Be in a position to walk away - do not allow one client to represent more that 30% of your business - if that happens seek to diversify client base fast. Very difficult to negotiate pricing with a client when they are aware of the fact that loosing their business will kill your treasury.

- Above all else, be empathic - people do business with people they like. All else being equal, a decider will always choose to buy from guy he feels he can have a beer with after work.

Quantifying the opportunity cost for the competitor cannot be stressed enough

After you've calculated that (even down to estimates of the man hours they'll save multiplied by how much those staff members cost), it helps to point out you're actually spending in the region of XXX per annum creating this software that's saving them YYY in relation to the alternative. If YYY is significantly greater than the cost of your product the buying it should be a no-brainer (if it usually isn't then maybe you are too expensive...) but that doesn't mean they won't try to negotiate, especially if they think they're being gouged and understand software has [near] zero marginal cost

That's where pointing out that XXX reassuringly higher than the price of the product is useful in establishing your price point isn't merely aspirational, and cheaper alternatives aren't likely to emerge from the woodwork any time soon.

SAAS Pricing discussion that isn't around an obscene price point appears to come down to two issues:

- The sense that someone wants a deal

- Perceived fairness of the pricing

If you want to hold firm on your pricing, I'd try to cut a functionality deal (e.g. "we'll allow X more of Y at this cost") to get reciprocity and fulfill the "get a deal" side of things, and then demonstrate the fairness in positive terms (e.g. "We provide 24 hour support and constant monitoring of your swizzle." rather than "This is a niche product, so we have to charge a lot or we'll go out of business.")

Keep the conversations short and to the point ("if you are explaining, you are losing") and don't be afraid to cut bad customers loose. If they haggle around price too much they are not likely to be a good customer and will probably cost a lot in support with a high probability of canceling anyway.

Good luck.

*Solid advice from carsongross: > don't be afraid to cut bad customers loose.

You develop Walk-Away Power by finding more people who want to do business with you. It's OK to shake hands with a prospect and part ways on a friendly basis. You can always circle back a few months later, see if their situation has changed. Suggest reading Secrets of Power Negotiating by Roger Dawson.

I do not know who your customers are, but for lots of corporations, spending a fortune on hardware (capex) is easier then spending anything on services (opex). It is linked to accounting rules for those 2 different categories of spending (I am not an accountant, I just happen to be dealing with one on a regular basis, as well as with a feew large entreprises).

So for your product to be competitive, it needs to be very compelling to get over that hurdle, and be much superior to anything else. Being in `magic quadrant` in Gartner or other is also useful (yes I know, it does not mean much, but it looks good for management).

One common way of getting over that hurdle is to find a creative way for your service to move to the capex side of things. One example is selling an appliance which does not do much, and relies entirely on your service, sell it for a very high price, bundle a 3 year support contract that covers the cost of your service, and suddenly it's capex :-)

Very good tip. Gartner reports are a huge sell to management - as consultants, it's what we look out for. Management teams are usually risk averse - they want to make sure they are delivering on the needs of the organization and need "evidence" to back up their decision should the investment fail.

You can usually write off things in capex through depreciation, which might be why corporations are willing to spend more on capex than opex. It also looks good to upper management and senior management in that it sounds like you're making an "investment" rather than just spending money to keep the business going.

> for lots of corporations, spending a fortune on hardware (capex) is easier then spending anything on services (opex)

Really? I have only encountered the opposite. CAPEX is normally okay when it fits within normal budget allocations, but any large CAPEX that requires extra budget is a hard sell. OPEX is much preferred because it makes budgeting much more predictable ("$XXXXX per quarter" vs "We might need to spend $XXXXXX some years from now").

That is part of the reason for the cloud craze.

Thanks for the reply, which business fields is this experience coming from?

I could be biased by the industries I worked in (telecom, engineering, banking), there was a constant push to bring down opex spending, by squeezing suppliers on maintenance fees, reducing headcount and improving efficiency (especially in IT). The target is recurring costs.

In those businesses capex looks good in annual reports as they tend to show investment in infrastructure, security and business support tools and software (we invested X$ to improve our telecom infrastructure, call center or any other field of the business). It shows a willingness to stay current, ahead of competitors.

It just shows that knowing how your potential customer are structured is important. Especially for large enterprise customers. Your business model needs to follow those trends.

I think we're probably talking different orders of magnitude and decision-making levels here.

Boards are very happy demonstrating a desire to achieve strategic change over the long term by making large capital investments. They have authority over the management accountants who can create a special budget for those exceptional items (and amortise capex over a long period of time), access to external finance if they need it, and responsibility for deciding exactly what their targeted return on that investment is and when its forecast to happen (sometimes after the fact...)

Much of the operational expenditure comes out of the budget of the responsible department which has annually or quarterly targets the Board has set for it based on existing recurring costs and revenues, so any new items of expenditure had best yield revenue pretty quickly or else cut costs in other areas. Of course, if that department truly believes there will be a longer term payoff they can always go to the Board...

Without knowing anything about your product, I'm going to focus on your last line. "Another issue is our product makes things convenient. It saves money which is a hard thing to sell."

I think you and them might be using a different definition of saving money. If your service replaces several others that they are currently paying for then they are saving money. If you are doing something like making things more efficient then perhaps from an accounting standpoint it is "saving money", but if it is just saving a few hours a week then in practice what you are doing is giving their employees a few extra hours to surf the net. You have to quantify real, actual dollar savings or real, actual sales increases.

You also mentioned a competitor. Are the people you pitching to using your competitor? If not, then they probably also think your competitors are too expensive. If you really are better and cheaper then try pitching to people who use your competitor and see what happens.

If your product was free and Selma Hayek came to the customer's office and provided a neck and shoulder massage whenever the customer logged in, some heterosexual man would still complain because he prefers blondes.

Don't talk about your own costs, that's not their problem. If you offer more than your competitor but cost less, that sounds like a good argument. Other than that, point out how much value you can bring to their business, how they're going to save more than they're paying you. Once they realize that, they're not going to care how much money you're making off it, one way or another.

> Don't talk about your own costs, that's not their problem.

Absolutely! They couldn't care less.

Not to mention, your costs are irrelevant to the price-point. Think back to your econ101. It's a competitive market, so supply and demand will largely determine the pricing options.

You can absolutely talk about your costs if you're replacing something they'd do in-house. It reminds them of what you are saving them.

if a prospect is balking at your product due to price, you're not doing a good job at framing the problem, or pain point, your product solves for the customer (whatever that value is, productivity or cash for example).

to specifically answer your question, because no one else seems to have, here's how i respond to the "price" question (without knowing anything about your business/product or what it does):

1. agree with the prospect (yes, agree)

> "mr x, i agree, wicked widgets isn't a cheap solution..."

2. and then ask them how much it costs/how long it takes to (whatever the problem is) now, on a quarterly/annual/whatever basis. if you've done your prospecting right, you'll be on the saving side of things...

> "but may i ask you how much you spend/how long it takes on/to (whatever) today?" (they answer) "and how is that affecting your business today"

3a. (if you DO save them money) - walk them through (BRIEFLY AT A HIGH LEVEL because every customer is different) the cost savings on a monthly/quarterly/yearly basis, if they go with your product. then stick that it their face.

> "mr x, how would saving $blah dollars per quarter improve the cost and productivity of your business? how would that affect your business?"

3b. (if you DONT save them money) - position the product as an investment in productivity (translate that to cost savings) and make the case as to how your solution is better than a more expensive competitor (there are metric shit tons of other ways to travel down this path, i am providing one).

> "wow mr. x, sounds like it does cost you a lot to (whatever). i'd be looking to address (whatever) too. wicked widgets is the only product that does (blah) and can improve your (whatever factor) by (blah) %. in fact, here's a recent whitepaper we published, that compares the cost savings of wicked widget versus other, more expensive competitors in the market. (point out the highlights of the paper versus your competitor, you should have a slide on this as well). mr x, any idea how much (blah) hours of productivity improvement could save your business a quarter? how would that affect your business?"

4. if by this point they still beat you up on price, you may have the wrong customer. but i trust that you should know that you have the RIGHT customer before going into this kind of meeting...

the point is, you need to know what the pain/motivation was for seeking out a solution to (blah). once you know the pain point (it may vary per customer), you can tailor your pitches accordingly.

best of luck,

justin

We have that problem. We just straight out list why we're better for the money, using the table just above the pricing: http://granttree.co.uk/#pricing

There's a differentiation to be made between PRICE and VALUE.

"It saves money which is a hard thing to sell." Really? Being brutal, it might be sales technique. If someone can come to me, show me they understand the business and show me that they can save us money, they're pushing on an open door. We had a local authority tax specialist contact us for that, saying "We'll save you this much every month, or you don't pay." Sold - maybe back it up with a guarantee? If we don't save you money, we'll refund it after 3/6/9 months or whatever.

There are a few factors worth exploring here.

1) qualify the lead 2) quantify value 3) reduce risk

First, are you confident that the folks raising these price objections are qualified customers?

Assuming they are qualified customers, usually price objections come from either not building and quantifying value earlier in the sales process, or from the clients perception of risk.

Talk with them to discover the relevant numbers. E.g. how much time do employees or consultants spend on this task now? What is the average fully loaded salary or hourly rate? Or, how much are they spending on other products which will no longer be needed with your offering? Do the math for them, show them the savings.

The other factor to focus on is reducing risk. You could be showing them significant gains/savings, but they are discounting those based on their perceived risk premium, because they may not be confident in your ability to deliver those results. Think about ways you can attack that perceived risk. Can you offer a guarantee or warranty? Include interviews or case studies with other customers which illustrate their savings?

> We aren't yet at a point where we can say take it a leave it. This might be part of the problem. If the potential buyer is aware that selling to him is important, then that gives them leverage.

As other people have said, every time they push on cost, you push back on value. People will buy expensive things if it's worth it to them.

It sounds like your potential clients aren't convinced of the value that you deliver or they are trying to get a deal out of you. You may want to proceed with caution for some of these clients. Some clients are always going to look for the lowest price as much as possible - they might not be a good fit for your company. It's hard but sometimes it does come down to take it or leave it. If you're not able to meet the lower price while still covering your costs, it doesn't seem practical, in my opinion.

You'll have to think about all the added value that comes with your company. i.e. documentation, one-to-one support, expertise. Try to find things that you can carve out with minimal added cost but provide a ton of value.

Are your customers large companies? If so you have to try to understand how accounting is done large companies and how to restructure your prices to accommodate your customers without actually lowering your prices.

Back when I was working on similar stuff (expensive niche software) we charged a one off fixed cost for a license plus an annual maintenance fee, which included upgrades and free support (people love free) plus by the hour consulting fees for all configuration and company specific changes.

By splitting the costs up like this it was easier to negotiate price, since we had three moving parts to tweak, plus it was easier for the customers since they could park the different costs on different budgets.

See Splunk (competing with free software) case studies, http://www.splunk.com/view/customer-profiles/SP-CAAABB2

It’s hard to say without seeing and hearing about your customers. But:

customers just want lower prices so they try to see if you’re going to cave in with a little bit of pressure. Don’t.

You need to anchor your price to value you’re providing. How do your customers think about the value your product provide? What do they compare it to? Maybe they see you as providing less value than your competitor, if they complain much about it? Can you change their points of reference when they compare your product?

Listen to them, but take what your customer tell you with a bit of salt. They are biased to get lower prices.

The people saying "the price is too high" are not customers. They are prospects.

Pricing is one tool for qualifying prospects. If the product does not really solve the customer's problems then the price is almost always too high because the product is not intended for them.

Unfortunately, finding and qualifying leads is hard work and lowering the price and wishfully thinking that this will lead to a satisfied customer is easier, at least psychologically and in the moment.

The serious fisher keeps some fish and throw others back. Indeed they don't try to set the hook for the wrong nibble.

One other point. Compare your product/service price to daily current expenditure of client " my product will cost less per day than what you spend on Coke (or other)for your team" - puts things into perspective.

I thought developers moved on to adderall and modifinal?

What you're fundamentally asking is 'why do our potential buyers think our price is too high?" and the most effective way to find out and regain control of the negotiation is to simply ask them.

As them why they think the price is too high. Most likely they are basing their opinion on comparative product value or alternative solutions or they are simply playing hard ball. The only other possibility is that they simply don't place as much value in your product as what you do which means you need to work harder at selling the long term benefits as well as the immediate gains.

It is mostly them playing hard ball (very common in that industry). In the end price is never the deciding factor but it is just frustrating to have to defend my self on price all the time.

Sounds like you're talking to the wrong prospects.

There are a number of strategies to explore: 1) You've already stated you have a very niche product. If that's actually the case you solve a huge problem for a very small market. Own the exclusivity: double your price.

2) Find a way to quantify the method for solving this problem without your product. Somewhere in there is substantial value not represented in your product. Respond to it.

To be honest, every buyer should push you on cost, otherwise they aren't doing a good job of representing their company. I push you on cost, you give me a break, my company makes more money. No harm in trying either, since most sellers aren't going to walk away from a deal just because you said it was too expensive.

It doesn't necessarily mean anything about whether your pricing is correct.

> Our competitor is more expensive yet offers a lot less.

Have you tried telling this to your potential customers? How did they react?

Are you delivering value to them? Can the customers see this? If not, take the value off the floor and put it on the table.

Does anyone know how I can save a thread like this without commenting on it?

Upvote it

That way it'll show up in https://news.ycombinator.com/saved?id=Jayd2014