Chris Mele, managing partner of Software Pricing Partners, highlights the significant influence that salespeople have on customers’ willingness to pay. Drawing parallels between used car sales and software sales, Mele emphasizes that salespeople play a crucial role in determining how much money customers are willing to put forward. Salespeople operate as entrepreneurs within software companies, with the freedom to experiment and make discretionary discounts. However, this approach leads to friction in pricing processes, as salespeople have the authority to offer discounts that can impact customers’ perception of a product’s value.
Software companies often focus on customers’ willingness to pay through surveys, but they overlook the impact of salespeople’s discounting behaviors. The lack of discipline in pricing leads to a lack of transparency, causing B2B buyers to question the values offered by software companies. Salespeople are motivated to give discounts to survive in a dysfunctional system where their performance is evaluated based on revenue generation and hitting sales targets. Their commissions further incentivize them to close deals quickly, even if it means offering significant discounts that may not align with the company’s pricing strategy.
To address the issues in the software pricing ecosystem, executives need to shift towards a new pricing philosophy grounded in transparency. This change also requires a shift in how salespeople are compensated. Currently, salespeople are rewarded for selling for volume to generate revenue, rather than focusing on selling products at their net price for profitability. Executives should reward consistency and adherence to price books to incentivize salespeople to sell at profitable margins. Implementing a policy that rewards salespeople for selling at or close to the company’s scheduled net price can encourage better pricing practices and lead to improved results for software companies.
By aligning salespeople’s incentives with the company’s pricing strategy, software executives can create a more cohesive and profitable sales environment. Balancing flexibility and control in managing sales teams is crucial, as giving salespeople too much autonomy in pricing decisions can lead to inconsistent results. A new compensation structure that rewards salespeople for selling at or close to the company’s net price can drive better outcomes for software companies. When salespeople feel secure in their roles and are incentivized to sell profitably, the entire company benefits from increased sales and improved business outcomes.
