“You’ve given a killer pitch, but the other agency down the road promised to do the same thing for cheaper. Tell you what, if you drop your price by 30 percent, we have a deal.” It’s a response agency owners and sales reps come across often following long and arduous sales negotiations with a prospect.
There’s no doubt it leaves them stung and confused every time it happens.
After all, when you’ve invested a significant amount of time earning a prospect’s trust and goodwill, it can be difficult to realize the deal (and, let’s not forget, the sales rep’s commission) are suddenly looking questionably thin.
How do you respond? Is the deal still worth doing? What is having this client in your portfolio worth to your brand in the long run?
To give you a framework for effective sales negotiations and to ensure you’re better prepared when you come across a ruthless prospect bent on obliterating your margins, we’ve brought in Vendasta’s Vice President of Revenue, Ian Jones, to provide killer tips he uses when negotiating a sale.
1. Understand the zone of possible agreement in sales negotiations
Jones says the first exercise you must conduct before entering sales negotiations is to understanding the zone of possible agreement (ZOPA).
Investopedia defines ZOPA as “the bargaining range where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal.”
Jones says it’s a concept that’s widely taught in Master of Business Administration programs and often used in commercial transactions.
In the context of sales negotiations in the agency world, Jones explains: “It’s a framework whereby an agency understands their needs as a seller, and researches and establishes the needs of the buyer. The ZOPA is where the needs of both parties intersect,” Jones explains.
Referring to the visualization below, Jones says a ZOPA can only exist if there is an overlap between an agency’s expectations for how much they expect or need to sell their services for versus what a small or medium-sized business (SMB) is willing to pay.
(Image source: CROPWATCH)
2. Don’t go into a sales negotiation with your “gut feel”
Let’s put ZOPA into an illustrative example.
In order for Agency X to sell a bundle of online presence and SEO services for a minimum of $1,000 per month, Salon Z must be willing to pay at least $1,000 per month. If Salon Z is willing to pay at least $1,100 per month, then both parties are in the ZOPA and a deal is possible.
But if Salon Z refuses to offer anything above $800 per month, then both parties are outside the ZOPA and a deal is unlikely.
Jones says from his experience, buyers and sellers at larger organizations typically predetermine their ZOPA by examining a whole host of economic and business inputs.
“They know what their operating expenditure, cost of acquisition, and cost of goods sold is. They take all this information to calculate the two magic numbers in their ZOPA: the walk-away price and the desired price. And they take that into their sales negotiations,” he says.
But smaller and mid-market companies often haven't done the math to determine their ZOPA.
“That’s a big mistake. You can’t go into a sales negotiation until you know what your bottom line number is,” Jones says.
“And if you’re going into sales negotiations with your ‘gut feel,’ and pricing services based on cash flow needs, you’re probably not in a great place to make good calls for your business. You’re going to dig a deeper hole for your agency.”
3. Don’t have a ZOPA? Analyze your costs, desired margins and composition to make one
Identifying the magic numbers to help formulate your agency’s ZOPA isn’t easy, but it must be done. A good way to start is by determining the cost of doing business and what you want to achieve.
This list isn’t exhaustive, but it could provide useful pointers to help determine your pricing:
- What is the cost of producing and reselling services? Look at the wholesale prices of various services your agency resells, such as digital products through the Vendasta platform.
- What are your agency’s operating costs? Rent, equipment, payroll, marketing, software-as-a-service subscriptions, and insurance are key factors that determine this metric.
- What are your anticipated future costs? Certain deals, like large transactions, may require you to hire additional staff and pay for extra services. Those may need to be factored into sales negotiations.
- What are your desired profit margins? You’re in business to make money, pay yourself handsomely, and reward employees for their success. How much do you need to charge relative to the cost of doing business to be satisfied?
“As a seller, your agency needs to have a predetermined walk-away price,” Jones says.
“Before you go into a sales negotiation, something else you need to really understand is: Where does your walk-away point put you in the context of the wider market in terms of your competition?
“So by doing some analysis, you can establish the cost of doing business, determine what your competitors are charging, and then choose how to set minimum and maximum prices for your solutions along the ZOPA.”
4. Use ZOPA to help discover your ideal customer
Undergoing an analysis to determine what you need to charge will indubitably help you figure out your agency’s ideal customer profile (ICP) and the solutions you need to sell them to justify the margins you want to achieve.
Often it will make agency owners realize—perhaps nervously—that many of their prospective clients are actually out of their ZOPA.
What should you do in that case?
“Just move on. Don’t try and force them into your ZOPA—let them go deal with mass-produced or lower-quality service providers if that’s typically what they want to do,” Jones suggests.
“If you’re providing exceptional service and reselling quality solutions that provide results, then it’s likely this exercise will force you to move upmarket and focus your business development efforts on prospects who have money.
“One of the biggest pitfalls when agencies don’t have an ICP is that they waste time negotiating a sale with businesses that aren’t in their ZOPA. Weeding those out in exchange for high-value, high-converting prospects works in your favor.”
5. During sales negotiations, focus on value
You’ve established your ZOPA and minimum-maximum pricing baselines. You’ve discovered your ICP. They have money and are happy to come to the bargaining table. But they keep asking or pressuring you on price.
From here on, it’s your job to shift the conversation away from the monetary aspects of the deal towards the value your agency provides, especially relative to competitors.
“The best way you can do that is by being an expert in your clients’ needs and an expert in solutions that are out there in the market,” Jones says.
“Those are the two things you absolutely have to have if you want to decommoditize the conversation and have value, rather than price, be the primary focus.
“You have to shift it towards features and benefits and explain to the customer what your agency is bringing to the table, why it’s relevant to them, and how it’s going to improve their brand, marketing, and growth outcomes.”
It’s strongly recommended that you bring in sales assets to your meetings that highlight your prospects’ challenges, their specific needs, and reasons why your agency is best placed to solve them and how.
Check out and download Vendasta’s white-label, rebrandable Sales Level Street Deck as an example of a presentation guide your agency can use for local businesses to sell online presence packages.
6. Consider specializing or employing sales specialists for select industries
Jones emphasizes the point about becoming an expert in clients’ needs.
While there are plenty of local businesses that need help with their digital marketing, the problem is agency owners and general sales reps can’t possibly understand the dynamics of each and every industry in order to have meaningful conversations with them.
Hence he suggests: “Think about fishing with a spear as opposed to casting a wide net when it comes to your prospects.”
“When you develop expertise in a few select industries, the motions of learning and repetition you get from speaking to prospects constantly evolves and adds to your credibility as opposed to dealing with a hugely disparate book of prospects.”
Jones says Vendasta, and even massive organizations like Salesforce, are increasingly employing specialists or upskilling sales reps to hone in on certain industries to improve conversation and conversion outcomes during sales negotiations.
“If you’re a small agency, start with an industry you know. And then as you scale, add layers of specialization by bringing in people who know markets you don’t. That way you increase your addressable customer base,” he says.
7. Don’t rush. Do your homework, especially with high-stakes clients
There is nothing more satisfying for an agency than winning a blue-chip client.
Imagine becoming an SEO provider for a major bank or managing the digital ad spend for a state government’s tourism division.
Jones’s advice: Never rush to sign these deals in sales negotiations.
“A common mistake I see is that agencies bite off more than they can chew,” he says.
“I know it’s tempting to have that brand association and be able to brag about the halo effect that having a major brand in your portfolio gives you. But you need to ensure the deal is commercially viable.”
He’s seen agencies who have won major contracts go on to have cash flow issues because they rushed to sign the deal and didn’t consider the additional costs they had incurred in order to deliver the project for the client.
So not only was the agency in a pickle financially, but the client wasn’t experiencing good outcomes because the seller couldn’t deliver on their promises.
“Even mid-market agencies can have cash flow issues because they over-indexed on the value of the brand association without thinking about whether they could deliver the work,” Jones says.
“So it comes back to the ZOPA—even with a high-stakes deal, you need to ensure what is commercially viable for you or reframe it to a place where you think it can be viable for you and the buyer.”
8. Bring in the right people when negotiating a sale
Particularly where you have a lucrative deal, you want to make sure that the right people from your agency are dealing with the right client during a sales negotiation.
“It’s a bit like American football. You have different formations for different plays and opposition, and you need to rearrange the pieces in the most effective ways you can,” Jones explains.
While you may want to empower your sales team to close the deal on their own, some prospects have extra demands.
“Certain local business owners want to deal with an agency owner because they need to feel that owner-to-owner connection. Others don’t care for titles and want to sit down with your marketing specialist to understand the marketing strategy you’re proposing,” he says.
Given this, Jones suggests agencies develop a robust discovery process that allows them to categorize prospects into various buyer personas.
“That way you can align your sales strategy to the types of human beings involved in the transaction,” he says.
“Remember that digital marketing is a relationship and service-based industry, so not everything can be won on features, benefits, and pricing alone. Who the buyer is dealing with matters immensely.”
Mark Roberge, author of the best-selling book Sales Acceleration Formula, spoke at a Vendasta event earlier this year on how effective prospecting and discovery should be conducted during a sales negotiation. Check out his 5-step sales process.
9. Deliver a great customer experience, both during and after the sales negotiation
The final piece of wisdom is to ensure you deliver a great customer experience during and after the sales process.
“Customer experience is the single biggest differentiation factor that most organizations waste,” he says.
He points to two of Vendasta’s most successful partners: Social Ordeals CEO Chris Montgomery and Janice Christopher Marketing Agency Founder Janice Christopher.
“What Chris, Janice, and their teams do really well is customer obsession. They provide an incredible experience in the sales negotiation and overdeliver on the promises they’ve made in the post-sales phase,” he says.
“So you want to make sure you really go out of the way to understand the prospect, tailor product and service bundles to their needs, help them understand the value, make them comfortable, and then overdeliver.
“And if you do that, you’ll be able to deepen your relationship with that client, drive up your prices, and sell them more digital solutions they need to grow their business.”
Want more tips to slam dunk your next sale?
For all the agency insights you’ll ever need on how to sell, what to sell, and who to sell to, check out and bookmark the sales category of our blog page. We update it regularly with fresh insights to help you and your teams grow more revenue.