Why do some sales close while others don’t? I am a strong advocate of win-loss reviews as an unparalleled way to answer this question. Among a group of win-loss reports I reviewed recently willingness to offer “at-risk” pricing emerged as a newer differentiator.
Like it or not, clients looking for another way to mitigate risk, are pressing sales organizations to share the risk. “At risk” pricing usually apportions a percentage of the fee to a guarantee of performance. Over the past weeks “at risk” pricing has continued to come up and thought leaders such as Anthony Iannarino are pro at-risk pricing under the right terms.
A demand to share risk isn’t surprising with clients in the driver seat. When I led Richardson, only once was at risk a part of an agreement and while part of the fee was at-risk it was balanced with premium pricing. The approach worked very well for all us.
Sometimes shying away from at-risk pricing is the judicious thing to do. Disadvantages include uncertain revenue, complexity, wrong metrics, disputes, an easy out… Benefits, on the other hand, include shared objectives, flexibility to meet client needs, negotiating a larger reward, competitive advantage.
When you and your client are clear about outcomes and metrics and you believe in your solution, at-risk pricing could be a useful alternative pricing strategy. If someone tells you there is a penalty for taking an action, for example, changing a flight, the reasonable response is to find out the amount of the penalty and weigh that against the gain.
- How important is this business?
- How far apart are you on price?
- Is the major competition offering to share the risk? (what , how, for what part of the deal etc.)
- What is the risk?
- Who’s sharing it?
- What is the level of your control?
- How will the outcome be measured?
- What is the long-term relationship impact?
- Can you limit the scope to a time when you prove value?
- Will it be mutually beneficial?
- What percentage of the price would you put at risk?
- What is your negotiation strategy?
It is a new world with a new buyer. I believe in being paid fully for value delivered—but also in creative strategies and experimentation. If you do share the risk, make it a win-win.