Deal Management: What It Is and How to Manage It

Everybody loves a good deal. This is true for both buyers and sellers. But how can you ensure your pricing structure allows for deal-making and maximizes the value potential in your offering? The answer lies in Deal Management.

Effective deal management involves setting prices that reflect customers’ perceived value and willingness to pay, thereby building trust and capturing financial opportunities. This approach requires taking control of the entire price structure, starting with a value-based and market-driven reference price, and adapting prices to different regions and customer segments.

For transactional volume businesses, net pricing is typically managed through pre-negotiated discounts or rebate structures. However, in other categories, each deal is negotiated individually based on specific configurations or customer solutions.

This article will explore deal management for configured products and custom projects, using stretch, target, and floor pricing concepts, along with data-driven opportunities based on historical cases and win rates.

What is Deal Management?

Deal management is the process of organizing, tracking and optimizing sales opportunities throughout their lifecycle to improve efficiency, close rates, and profitability.

It encompasses everything from initial customer interactions to closing the deal, ensuring that all terms and conditions are met and that the agreed-upon pricing is profitable and competitive. Effective deal management is crucial for businesses offering configured products or custom projects, as it maximizes value and profitability for the seller while meeting customer needs and delivering high customer value. Done well, deal management is a win/win concept for both buyers and sellers.

Elevate Project Pricing from Cost-Plus to Value-Based

One main challenge in deal management is shifting from cost-plus pricing to value-based pricing. Cost-plus pricing involves using the product’s cost as a base and adding a markup to ensure profitability. While straightforward, it often fails to capture the true value perceived by the customer. Moving to value-based pricing can be difficult, as it requires understanding each customer’s unique value equation.

Intermediate Step: Applying Market-Accepted Margins

An intermediate step between cost-plus and value-based pricing is applying market-accepted margins. This approach adjusts the markup based on market expectations and the competitive landscape, using the order content as a proxy for value and competition. By doing so, companies can achieve more realistic and market-aligned pricing structures while transitioning towards value-based pricing.

To implement market-accepted margins, companies need to:

Identify the scope and structure of the order: Different products represent different levels of comparative value for the customer.

Cluster orders: Differentiate and cluster orders based on their content, complexity, and competitive landscape.

Analyze market data: Gather market intelligence on typical margins for different types of products or services within the industry.

Adjust margins accordingly: Apply differentiated margins based on the order scope, order type, customer segment, and market data. This ensures competitive prices while maintaining profitability.

Transition to Value-Based Pricing

Value-based pricing focuses on setting prices based on the product’s perceived value to the customer rather than the cost of producing it. This approach requires a deep understanding of customer needs, market trends, and competitive dynamics. By aligning prices with customer value, businesses can enhance profitability and build stronger customer relationships.

To implement value-based pricing, companies need to:

Understand customer needs: Gather insights into what matters most for different customers and what they value about the products or services.

Analyze market trends: Stay informed about market trends and competitive offerings.

Leverage data analytics: Use historical data and analytics to determine how different pricing strategies have impacted sales and margins.

Balance the customer value equation: Value-based pricing should drive the business strategy, not just pricing. Adjusting prices and what customers perceive they are getting is crucial.

Stretch/Target/Floor Pricing Strategy

The stretch/target/floor pricing strategy involves setting three price points for each deal:

Stretch Price: The highest price a company aims to achieve, representing the optimal outcome.

Target Price: The realistic price a company should expect to achieve, balancing profitability with competitiveness.

Floor Price: The minimum acceptable price that ensures the company still covers costs and achieves basic profitability.

This strategy provides flexibility in negotiations, ensuring that even if the stretch price is not achievable, the target price meets business targets, and the floor price prevents losses.

Managing Transactional Deals

Transactional deals involve predefined products or services sold through standard sales processes. These deals often include predefined discounts or rebate structures to incentivize customers and close sales quickly. Effective deal management practices for transactional deals include:

Standardized pricing structures: Develop clear pricing guidelines and discount structures.

Automated approval processes: Implement automated workflows to streamline discount approvals.

Monitor performance: Regularly review transactional deal performance to identify trends and make data-driven adjustments.

anaging Non-Transactional, Bid-Oriented Deals

Non-transactional, bid-oriented deals are typically customized and negotiated individually. Effective deal management for bid-oriented deals includes:

Developing custom proposals: Create detailed proposals that address customer needs and highlight unique value.

Utilizing historical data: Leverage historical case data and win rates to inform pricing decisions.

Implementing sales stretch/target/floor concepts: Use the stretch/target/floor pricing strategy to guide negotiations.

Leveraging Ignize's Solutions for Effective Deal Management

At Ignize, we specialize in Generative Precision Pricing (GPP), using advanced analytics and AI to optimize pricing strategies. Our solutions help businesses shorten time to value, improve pricing accuracy, and enhance profitability.

By leveraging Ignize’s expertise in deal management, businesses can effectively manage both transactional and bid-oriented deals, ensuring all pricing decisions are data-driven and aligned with customer value.