How to Address Your Sales Team's Declining Deal Size
Reversing a Declining Deal Size Means Addressing the Three Underlying Causes
A declining deal size might be the result of one, some, or all of the following factors. The key is to isolate which of the three are at the source and to act accordingly.
- Deal sizes decline when the stakeholders are not sufficiently compelled by the differentiation offered by the solution capabilities. This is a rising challenge today because emerging technologies have accelerated the commoditization process.
- Ineffective negotiations can result in a bottleneck that reduces the deal size. This outcome is common because the urge to make the sale is strongest near the end of the cycle when negotiations begin. As a result, late-stage concessions made in the interest of closing drive the value down.
- A diminished deal size often suggests that the customer’s white space has not been fully explored. This scenario is often due to an incomplete strategic account planning process that creates a misalignment between the sales team and the opportunities with the greatest potential.
While frustrating, a declining deal size should prompt optimism. The reason: a declining deal size suggests that the solution is, in fact, strong enough to result in a sale, even if it is one that is too small. This means that the sales professional has enormous potential because they are positioning a product or service that resonates with customers. The remaining challenge is to elevate the solution to a level where its full value can be recognized.
Here we offer ways to address each of the three challenges behind a declining deal size in sales.
Highlight the Right Differentiators
Technology that was once expensive and inaccessible is now affordable and available to more businesses. This development has brought more competing players onto the same field. As a result, differentiators are increasingly rare. When solution differentiators are rare, customers often consider price to be the deciding factor. This scenario leaves the sales professional with few paths to win the deal. Moreover, a lack of differentiators invites the customer to see the solution as a commodity which further devalues the product or service. Addressing this problem means getting strategic about identifying and communicating differentiators.
This strategy begins with a customer-centric approach because true differentiation is in the eye of the customer. Simply, what appears as a meaningful differentiator to the sales professional will not necessarily be seen as a differentiator to the customer. Isolating the differentiators that matter to the customer means understanding what features sit at the intersection of uniqueness and customer value.
Learn more about evaluating your organization's differentiators by downloading the brief: How to rediscover solution differentiators in a changed world
A capability that is unique relative to the competition will not advance the sale if it has little relevance within the nuanced context of the customer’s world. Similarly, a capability that is meaningful to the customer but ever-present among the competition is little more than “table stakes.” The sales professional must take the time to assess each of the individual capabilities within the solution and identify which ones represent both uniqueness and customer value.
This exercise is crucial for success, given findings from PwC which show that 63% of operational leaders state that understanding what customers value is a major challenge. Perhaps the reason for this challenge is the fact that the customer’s value perception is constantly shifting. Moreover, only one-quarter of respondents “feel very confident that their operations are designed to give their customers value and a distinctive experience, now or even three years from now.” Delivering a distinctive experience today means satisfying the customer’s need for value that is relevant, perceptible, and unmatched.
Build Negotiation Skills
Preserving the financial value of the sale has long been a challenge. Today that challenge has intensified as customers look for ways to continue their commitment to low costs – a pandemic trend that continues today. The sales professional who can convert a demand to a need will succeed because they can meet that need in ways that do not require sacrificing valuable factors like payment terms, pricing, or the scope of the sale.
Learn more about how to improve the outcomes of your negotiations by downloading the brief: Gain Higher Prices with Sharper Negotiation Skills
First, sales professionals need to know how to properly open the negotiation. The opening of a negotiation sets the tone for the rest of the exchange. This tone should be one of cooperation. Therefore, sales professionals should begin by recapping common ground. The opening is an opportunity to highlight areas of agreement and create positive momentum. This approach makes clear from the outset that the negotiation will not be adversarial in nature. Reviewing common ground is also an effective way to check if anything has changed since the last conversation with the customer.
Second, sales professionals must be prepared to address customer demands. Customer demands are inevitable in negotiations. Learning to deal with these demands is critical because if they are not handled properly, demands can lead to concessions or early trading that diminishes the value of the sale. The sales professional who can convert a demand to a need will succeed because they can meet that need in ways that do not require sacrificing valuable factors like payment terms, pricing, or the scope of the sale.
Third, it is critical to understand how to trade. Knowing what to trade means knowing the value of what is being traded. Prior to a negotiation, a sales professional needs to fully understand the intrinsic and extrinsic value of every aspect of the deal. Without this information, it is not possible to gauge if what is received in return is of equal or greater value. Additionally, trades should be spaced in increments to make their value more perceptible.
Access the Customer's White Space with Strategic Account Planning
Often, a diminished deal size is the result of a problem that begins before the first sales conversation. That problem is a lack of strategic account planning. Without a thoughtful approach to account planning sales professionals will be left pursuing customers that represent partnerships that are limited in scope. This trend also presents considerable costs given that it is six to seven times more expensive to acquire a new customer than it is to retain an existing one, according to Bain. In fact, increasing customer retention by just 5% increases profits by 25 to 95 %. Therefore, sales professionals need to intensify their focus on identifying priority accounts so that the deals they pursue allow for expanded revenue opportunities.
To be effective, a strategic account planning process must be agile. Sales professionals must engage with customers who have changing needs and expect more changes throughout the year. In fact, ongoing change is being incorporated into most business plans today. Research from McKinsey shows that 90% of CFOs surveyed build their plans using at least three hypothetical conditions. Sales professionals must have the agility to track which of these many scenarios the customer faces. They need to execute more frequent account plan reviews by identifying drivers, initiatives, and opportunities earlier as conditions change.
Strong account planning also considers the width and height of accounts. This approach means increasing the number of relationships in an account (width) and increasing the level of the relationships (height). Account managers can begin this process by asking existing contacts for referrals within the account. With these referrals and a carefully conducted white space analysis, account managers can uncover unaddressed areas of the business where their solution can yield benefits. Using internal referrals is also a powerful way for the sales professional to communicate that their acumen and abilities come pre-vetted. That is, if the account manager is seen favorably by one area of the business, they are likely qualified to engage with another area of the business.
Access Your Team's Unrealized Potential
A declining deal size means that sales professionals and their solutions have unrealized potential. Capitalizing on that potential means acting to remedy the three underlying causes by fully exploring and articulating differentiators, improving negotiation skills, and rethinking the account planning process so that efforts are focused on viable opportunities that represent future growth.
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