Knowing the value of your proposition and the buyer are two of the hardest things the owner of an SME can ever learn, but both can hurt adversely affect business payments.
In the business to consumer (BtoC) market the feedback is rapid. But in the business to business (BotB) market, there can be many distorting factors.
In a BtoB environment the dynamic is exacerbated because the lifecycle of sales is very different (longer) and the imbalance between size of buyers and sellers is often so vastly different. Understanding that can be the key to boosting sales and payments volume.
Typically, a small business looks at its product and works out how much it costs to produce. The immediate reaction is then to add a margin to cover overheads and then a bit more for profit to get to a price point to attract buyers. Invariably the small business wants its product to be as cheap as possible in the belief it will be easier to sell. Wrong! Understanding the interaction between product value, its pricing and the buyer is critical in BtoB.
Always start by pricing for value and forget the cost of the product (if cost is higher than value then youre on to a loser anyway!). Spend time working out the value to the buyer.
Once you have your product proposition remember that product buying decisions correlate closely to the status of an employee in a large corporate. Instead of You get what you pay for its You get who you price for.
All corporates have approval hierarchies and naturally, the higher the spend the more senior the employee. Pricing your goods at about $150 gets you to someone whose budget is commensurate. Given its proportion of their budget they will likely take as much time as the CEO takes to make a $1 million buying decision. The difference is that the $150 decision still needs to get ratified up the chain which adds complexity, layers and ultimately, time.
It never ceases to amaze me at the size of transaction that a corporate procurement department will get involved in, if you are lucky enough to be on the preferred supplier list in the first place. By and large they will go through the same process as if you were IBM. Can we see your statutory accounts? What are your forward trading prospects and do you have enough cash? Who are your Directors? The contracts that come out of the back end read like War and Peace.
Actually, by getting your products endorsed by the CEO makes this process easier. The head of procurement is always more amenable when the CEO is endorsing a product. However, I cant count the number of times Ive heard the sales team in a small to medium business bemoan the fact they cant get access to the C-Suite executives.
Dont be apologetic. Be bold and support your $1 million price tag. Tell the buying CEO that the $1 million spend will save the buyer $5 million of a problem. Put it like that and the CEO turns to their procurement chief and says "Why arent we buying this product?"
Paint the picture of where the buyer will be once the product is bought and being used. Even the most mundane products can sell a vision. The one, sure fired way of doing so is to price it for the CEO to decide. Of course, the £1m chair is unlikely to get far .but you never know!
Neil Radley is a non-executive director on Invapay's board, and former managing director of Barclaycard in Western Europe.