- Blog post
Key to maximum profit: Your customer’s price-tolerance ratio
Every customer has a price range where he or she is willing to make a decision without any further thinking. Sales guru Mark Hunter refers to this as the Price Tolerance Ratio, or PTR.
Knowing your customer’s PTR is critical, yet salespeople fail to comprehend the obstacle that not knowing it presents. When you don’t understand a customer’s PTR, you inevitably:
- offer a price that does not maximize the profit potential
- get the order but encounter resistance from the customer that hinders the relationship, or
- encounter resistance that leads to spending too much time on the selling process and ultimately no order.
The first scenario is the most common. The salesperson doesn’t find out the price is lower than necessary until long after the sales is completed – or never finds out.
The solution: Long before customers express any intention to buy, find out how they determine value and what their critical needs are.
Begin determining a customer’s PTR early in the prospecting and sales process. How? Ask what they’ve been paying for services in the past and what their expectations have been for the suppliers they’ve been using. Without direct questions like these, you will waste time chasing customers you ultimately do not want.
Asking these questions during the sales transaction itself is too late. Once the customer has decided to buy, he or she will often focus on what it will take to get a lower price. Ask about value now, and they may use the question as a negotiating ploy.
Take the time to ask the customer why the order is important and what risks they face if it isn’t received on time. Ask how the order fits into the overall scheme of what they do and what their customers do.
If you can identify value or risk in other parts of the supply chain, you can leverage this information during the sales process and increase the amount the customer is willing to pay (widening their PTR).
The second scenario is that you get the order, but with resistance that hinders the relationship. Resistance is not always a bad thing. If you don’t encounter some customer resistance from time to time, you have not truly pushed the process to maximize profit.
The final reason for knowing the PTR is to prevent you from spending too much time with a customer from whom you can’t make any money.
Is resistance superficial?
When you encounter resistance, you first have to determine if the resistance is real or superficial. To do that, watch to see if the buyer continues to express concern about price on multiple occasions.
If price comes up only once or twice, you can reasonably assume it is merely the customer venting. Re-establish the value proposition and pursue your sales process, knowing your level of service and support is going to overcome any pricing perception.
If the customer keeps bringing up pricing, then the resistance is probably real and you probably need to slow down the sales process and spend more time on price.
Sure, Price Tolerance Ratio (PTR) is a different concept. But if you want to improve your bottom line, begin now to identify the PTR for each of your customers. Waiting until you close the sale is too late.
Source: To learn more from Mark Hunter, visit www.thesaleshunter.com