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Why Understanding Risk Is Critical In Sales

In every negotiation there are risks and rewards. To make sure that the potential for reward outweighs the risks involved sellers should understand both of these perspectives:

  • the risks clients are assessing when considering purchasing from you (hint: they may have nothing to do with what you’re selling); and,
  • the risks you need to assess when considering bringing on a client

As a general rule, higher priced products and services are thought to be a higher risk. That’s not a bad thing. It’s a reminder that you need to be prepared to put your clients at ease. You will do that early and often throughout the sales cycle.

Here are some of the risks your clients and prospects may be assessing:

Return on investment (ROI) – how much return do they need to consider the purchase a win? How quickly do they need to realize that return? Is that realistic? If not, what is realistic and how will you convince them yours is a viable option? If they are dealing with shrinking margins and profits, they will think long and hard about adding unnecessary expenses. Know whether increasing operating costs and declining revenues or market share have them concerned. Understand how they would be personally impacted and why. Scale your approach accordingly.

Legal/legislative mandates – example: The Affordable Care Act; Clean Air Act and First to File Patent Law each had profound impacts on existing and start-up businesses. Several of my clients held off on major purchases until they fully realized the depth to which they’d be affected. Some put hiring freezes in place while others moved full-time employees to part-time, or vice versa depending what was of most benefit. Even the best of sellers had deals thwarted as businesses waited, listened, fretted and learned.

Staying ahead of the competition and market – every business owner needs to drive the relevancy of their products and services. Ask questions to understand whether they plan to make significant capital or personnel investments. Might they be in the middle of considering new opportunities and wondering what would be best to take advantage of? No one wants to miss out so introduce them to new opportunities as often as possible.

Sellers, here are some of the risks you need to assess:

Profits – how much profit will your company realize with the sale? If you drop your price to match someone else’s, what will you gain and lose? Are you sure you needed to drop price to win the deal?

Resources needed – How much will accepting the business cost your company, your team, you? Time and use of resources are valuable, yet the cost of misuse or overuse often doesn’t show up on financial spreadsheets.

Your pacing – how badly do you need the sale and might that need be clouding your judgment?Be honest. When pressures add a bit of panic, you are more likely to accept less-than-desired terms.

Your pipeline – How much would walking away hurt your company and you personally? Having a robust list of qualified deals in the works gives you the confidence to stand up and only accept business that’s ideal. The best time to prospect is all the time. Keep your pipeline full.

Become aware of the risks concerning your clients so you can more easily speak to the rewards of doing business with you.