Attention Tech Sales Professionals (And Their Teams):
Sticker shock isn’t just about price. If you hit your customer with unfriendly contract terms late in the sales process, you risk negotiation delays and lost deals. Below are some ideas for heading off contract sticker shock well in advance. (FYI, this is the first of a new series of articles for salespeople. And we have an on-demand course to match: Tech Contract for Salespeople, Closing Sales of SaaS, AI, and Other Software and Technology.)
Salespeople, you know the cost of a price hike late in the sales process. The customer gets angry, and odds of a walk-away rise. But it’s not just late-in-the-game price increases that trigger this sort of customer anger. Contract sticker shock kills lots of deals too, and it delays many more.
By contract sticker shock, I mean that you reveal your contract terms late in the sales process – around the time the deal seems mostly done – and some of those terms are not “industry standard.” At least, that’s how the customer puts it. Your Legal Department may disagree, but either way, the contract strays far from customer expectations. The customer’s been marching happily down the road to a deal, probably with price already worked out, when suddenly you send your standard contract. Or you send your first redline of the customer’s form contract. Now you’ve got an unhappy customer thinking about alternatives or, at a minimum, preparing for a battle.
I call this contract sticker shock, but it’s really just sticker shock. That’s because it’s about price either way. The contract terms your customer doesn’t like either cost money or create the risk of costing money, so they raise the effective price.
An ounce of prevention is worth a pound of cure, so the best strategy is to make sure contract sticker shock doesn’t happen in the first place. And you have some tools available. The five steps below require only that you consider the contract part of the sale, not someone else’s problem.
- Well in advance, find out which of your terms customers usually don’t like. You may already know, but if not, someone else almost certainly does.
- Learn the reasons behind your unfriendly terms – again, well in advance. Your Legal Department probably isn’t crazy. They want those “unfriendly” terms for some reason. Find out why. And don’t settle with an “it’s our policy” answer. What’s the reason for the policy? Don’t argue over that reason. Just explain that you need to know so you can explain it to the customer in advance (in step 4 below) … making Legal’s job easier.
- Learn what the Legal Department will compromise, and what it won’t – again, well in advance. You may already know., but if not, ask. That could make the contract managers or lawyers nervous, so explain what you will and won’t do with the information (steps 4 and 5 below).
- Early in the sales process, let the customer know about unappealing terms. You could send the whole contract early, before you’ve even settled on all your terms. Yes, that has downsides, and you’ve got to weigh them against the advantages of avoiding contract sticker shock. And of course it only applies to sales on your own paper. But it has obvious advantages. And if you can’t or shouldn’t send the contract early, talk to the customer in advance about the more troublesome terms (from step 2 above). Explain why your side wants them. You don’t have to convince the customer; you just need to soften the ground for the coming contract negotiation.
- Mediate between the customer and Legal. Don’t make concessions you’re not authorized to make. That just leads to contract sticker shock later, when Legal pulls them back. Rather, write down the customer’s concerns about your more troublesome terms and discuss them with Legal. Don’t argue! You won’t speed your deals along by making an opponent of Legal. Partner with them. Look for areas of compromise. And look for further explanations that might mollify the customer. Get the conversation going, even if it’s just simmering in the background, early enough to avoid contract sticker shock.
I don’t mean to suggest that you take over contract negotiations. Again, your job is to soften the ground. You’re anticipating trouble and heading it off. That should lead to fewer negotiation delays and fewer lost deals.
If you’d like to learn more about how to soften that ground, please check out our new course: TECH CONTRACTS FOR SALESPEOPLE, Closing Sales of SaaS, AI, and Other Software and Technology.
And, of course, we have more content, and courses, tailored for lawyers and contract managers. For those, please check out our website: https://courses.techcontracts.com/
THIS ARTICLE IS NOT LEGAL ADVICE. IT IS GENERAL IN NATURE AND MAY NOT BE SUFFICIENT FOR A SPECIFIC CONTRACTUAL, TECHNOLOGICAL, OR LEGAL PROBLEM OR DISPUTE, AND IT IS NOT PROVIDED WITH ANY GUARANTEE, WARRANTY, OR REPRESENTATION. LEGAL SITUATIONS VARY, SO BEFORE ACTING ON ANY SUGGESTION IN THIS ARTICLE, YOU SHOULD CONSULT A QUALIFIED ATTORNEY REGARDING YOUR SPECIFIC MATTER OR NEED.
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