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Willingness to Pay: It's More Complicated Than You Think

Willingness to Pay, The Biggest Contributor

Published: April 4, 2024 | By Chris Mele |

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To read the original Forbes article, click here.

Forbes: How Salespeople Influence Willingness To Pay

The idea that customers primarily drive willingness to pay is a false assumption. As I’ve previously written, willingness to pay is a lot more complicated for software companies. Salespeople have a significant influence on customers’ willingness to pay and this is especially true in the software industry. Salespeople have the power to negotiate discounts and can significantly impact both the perceived value of the product as well as the net price actually paid.

It’s common knowledge that software sellers often have the freedom to experiment with discretionary discounting behaviors, which can lead to friction-filled pricing processes and a lack of transparency. Buyers value transparency, and it is easier than ever for them to get actual data points on net prices paid as prospects trade notes and learn from each other.

If a buyer knows a company they are speaking with is willing to give a discount, they will pressure heavily to get one too. This slows down sales velocity, gums up the sales process and puts significant downward pressure on price points.

Worse yet, when a customer is confronted with the knowledge that lower prices are being offered to others who are buying the same thing, that prospect’s willingness to pay is immediately and irrevocably reduced. In fact, our research shows willingness to pay actually lowers beyond original thresholds in these environments as buyers hunt for ever lower prices than what others have paid–and they’re more than willing to delay their purchases and change buying behaviors in support of these hunting expeditions.

Forget WTP, Focus Instead on Willingness to Discount

Current compensation structures for software salespeople incentivize them to sell for volume to generate revenue for the company, not to sell at a product’s net price for profitability. Executives should reward consistency and adherence to their companies’ price books and create a new policy that rewards salespeople for how closely they sell at targeted net prices.

If you want to increase your customers willingness to pay for the value you deliver, reduce your salespeople’s willingness to discount with policies and more formulaic and transparent pricing.

You can read our full article on Forbes: How Salespeople Influence Willingness to Pay

 

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Chris Mele

About The Author Chris Mele

Chris is Managing Partner for Software Pricing Partners, where he and his team have launched some of the software industry’s most transformative monetization strategies. As a former software company founder and leader, Chris focuses on the impact effective licensing, packaging and pricing strategies can make on the most essential software company metrics: revenue, profit and valuation. Under his leadership, Software Pricing Partners has become an influential voice for growth-oriented software companies both large and small.

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