The Consultative Business: How ALL B2B Companies Should Set Prices

  • SumoMe

For those who don’t know, I started my career in sales. More specifically, I started my career as a car salesman. Being the intellectually curious lad that I am, I began seeking out books to read on becoming a better salesman. Most of the books I found about selling were in B2B sales, but I read them anyway. One of the first things I did was purchase the 9 Essential Books for New B2B Salespeople, at the recommendation of Anthony Iannarino. A couple of years later, I finally got to Mack Hanan’s Consultative Selling…and I really wish I had started with this one. Although I am no longer selling professionally (technically we’re all in sales, but I now get paid for writing–not selling), I find this book more relevant now than it could have ever been.

Although the specifics that Hanan dives into pertain to people who sell professionally, the general principle pertains to any business person who offers products or services to other business people. So, if you sell directly to consumers, the principle doesn’t really apply to you (or at least it’s more abstract). For B2B companies, though, and particularly small businesses people like graphic designers, insurance agents, landscape architects, and so on, Mack Hanan’s principle of the consultative salesperson is something that needs to be thoroughly understood.

Hanan defines consultative selling in this way: “It means that you stop selling products and services and start selling the impact they can have on customer businesses.” Consultative selling is about moving past the discussion on product features and focusing on how your product can either a) improve your customers’ revenues or b) decrease your customers’ costs. It sounds simple, but it’s actually quite profound. All of us say we create value for our customers, but we don’t articulate it very well in the way we position and price our products and services. Here’s what Hanan has to say…

The single most critical difference between consultative selling and vending is the way they deal with price. Vendors base price on their costs. Margin is their way of asserting the right to a “fair price.” Consultative sellers base price on their value. They consider margin to be their responsibility, not their right. To them, it is the seller’s responsibility to add sufficient value to customer businesses so that customers will be able to add margin to the sellers in return.

In this sense, margin is the consultative seller’s pay for performance. The sale itself is no longer a transfer of a product or service in exchange for a price. It becomes a value exchange. In exchange for having their profits improved, customers trade off some of the improvement as margin to the supplier.

In other words, in consultative selling, the price you charge is a commission you get paid by your customer. And the customer who hires you isn’t incurring an expense but is instead making an investment.

The Consultative Small Business

As soon as I read the introduction to Consultative Selling, I began to rethink my pricing strategy. Intuitively, I’ve always known that I needed to communicate the value I provide to customers in order to get them to hire me. Yet, the answer under the question, “How Much Does It Cost?” on my writing services page was all about me. I had even come up with a nifty little acronym for COST (Consulting, Operating, Studying, Text) that explained the costs that went into my writing and how I could rationalize my prices because of them. WRONG!

The problem with this line of thinking is that it ignores why the customer hires me in the first place. It isn’t because of how much time or effort goes into my writing. It isn’t even because of the quality of my writing. It is because they believe that they will derive some kind of business benefit from my writing. And this isn’t just about me. It’s for anyone selling products or services to businesses. How are you setting your prices? Are you arbitrarily setting them based on what you think a “fair market price” is? If so, you’re doing it wrong.

When you charge a competitive “price” based on your costs and the market, you are sending the signal to your customer that your product or service is an “expense.” What you want it to be is an “investment.” All purchases, from office furniture to company logos to liability insurance, are made because the business person believes that those purchases will provide some monetary benefit. It doesn’t matter what you sell. Your focus should be on how it impacts your customer financially. That is why they’re doing business with you–whether they admit it or not.

Since repositioning myself as a consultative business person, I’ve adapted a method of tracking the results that my writing generates for my customers. What systems have your created to prove to your customers that your product or service either saves or makes them money? If you haven’t done anything of the sort, you’re taking a stroll down Commodity Lane–and that’s a dead end street.

So, this is my challenge for you: become a consultative business. Change your focus. Measure the results generated by what you sell, and then sell the results–not the product. You will make more money. Your customer will make more money. Everyone wins. What do you say? Are you ready to become a consultative business?