Price trap

Leveraging the Inverse Relationship Between Price and Risk0

By Tibor Shanto – tibor.shanto@sellbetter.ca 

I was reading a piece recently where the author was making the case for a specific buyer behaviour. He suggested that people prefer not to take a risk over getting better barging. Which gets one to think about price and risk, and the ultimate risk in using price as a sales tool, as many do.

Most people, according to experts, about 70%, are risk averse, and will take proactive steps to avoid risk. If you want to see this in action just stand by any car rental counter and watch them buy unnecessary amounts of insurance, all with the goal of being covered for all risk. This includes risk that many already have covered by virtue of their existing auto policy or other sources like their credit card. (Disclaimer: I am not an insurance expert, please check with one before renting). Couple that with the propensity to associate risk with the unknown, in sales that would be any provider who is not the incumbent, and you begin to appreciate the challenge many sales people have.

Despite all that has been written by many about the futility of selling on price, how it erodes margins, which in turn has a number of detrimental effects, I continue to see sales people (apparently professional sales people) spend more time selling their managers on the need to make price concession in order to win deals. But if we take the premise presented as accurate, reducing your price may in fact be losing you deals, rather than helping you win them.

Think of it like this, every time you drop your price, you raise your risk profile, making it harder to get the buyer to select you. The more of a bargain you try to be, the more you cause the buyer to pause and think. “Is this too much of a bargain, is it cheap because it is no good, is he willing to drop the price because it was inflated to begin with, is everything else he tells me inflated, ooh, I can’t afford to take that risk.” One strategy to explore is how by selling at full value and full price you could actually reduce the risk profile and sell more. Yes I know, this may not be as easy as it sounds, but there are ways to do it.

Start by changing your focus from the price side to the risk side of the equation. By this I don’t mean working on minimizing your risk profile, but increasing the risk profile of where the buyer is now. Given the propensity to flee risk, and the premium people are willing to pay for safety, seems like a better idea than discounting.

This may not be easy, if there were a glaring risk factor, the buyer would have seen it and acted on it already. Your task is to identify little elements that if either left unattended, or combined can lead to insurmountable risk. This requires that you as a sales person abandon your focus on need or pain, being a “solution”, and focus on the buyer’s objectives. Unlike other sales people who beat the drum about a current risk, engage them based on the risk of not achieving an objective that may be 18 – 24 months out. Likely this will not be one or even two things, but a series of smaller risks, not scary on their own, but in combination, they will lead to the big risk the buyer does not see, yet. Think of it as dominoes, it may not be the first, or the third, but if the fifth domino gets knocked down, it exposes the buyer to the big risk inherent in domino six. Helping them avoid the first two or four dominoes from falling, will reduce the unseen risk, and help you drive full price, if not a premium.

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Qualifying Budget Too Early – Sales eXecution 3081

By Tibor Shanto – tibor.shanto@sellbetter.ca 

SketchNotesPRICING(LS)(E)-01

I was watching a pundit wax poetic about how to qualify prospects on an initial prospecting call. I give him credit for acknowledging that the phone and cold calling is still a viable means of reaching real buyers, but I had issues with some other points he was trying to make, namely, qualifying for budget.

To be fair, let me state the assumption I am working with. This is not a one call sales, it is a bit more involved; the site the piece appeared on was a technology related site, and not one that promoted USB cables, but broader systems integration.

Now don’t get me wrong, I think budget should be established before you go too far in the sale. Investing valuable time and potentially resources without knowing if and how you are going to be paid is not what professional sales people do. On the other hand, on an initial prospecting call, one where at best you may establish engagement, or secure an appointment, is budget really the issue at hand? Given that this call will likely lead to the first of a number of meeting, with multiple people with varying agendas; going down the budget hole could be more fatal than practical. With budget usually being the link in the chain between price and value, it would make a bit of sense to imitate some sense of value first, not part of a prospecting call, and if it is, it will be a short call.

Bringing budget up in that first meeting that results from the prospecting call makes sense, but not on the prospecting call. As mentioned, there is a link between budget and value, so there needs to be some semblance of value first. Now of course the problem with “value” is that it is rarely defined, it is talked to, it is talked about, it is probably part of every sales conversation, but there as many different definitions as there are people asked, often more.

One actionable definition to work with is as follows:

Those services and/or products that remove barriers, obstacles, or help bridge GAPS between where the buyer is now – and – their Objectives!

So until you hone in on the buyer’s objectives, and understand how you can move them towards achieving those objectives, it is hard to talk about budget, in a serious way, and I would suspect that unlike our pundit friend, you are serious about succeeding in selling.

Based on the post, I have to conclude that the pundit in question only works with “inbound” order takers, and here is why. Say we wen his way, and qualified based on budget, we would miss out on a whole bunch of sales. We have all had instances where when we first approached a prospect, they did not have “budget for this kind of thing”. But after engaging and together working towards how what you are selling moves them towards their objective, they are able to produce budget. Could be as simple as helping them see how the purchase may be an operating item vs. a capital spend. Or it can be more complex exercise of bringing other beneficiaries into the process. But in that first call, they would disqualify themselves, and you’d miss out on the sale.

Tibor Shanto    LI Bottom banner

FREE is A Four Letter Word – Sales eXecution 2900

By Tibor Shanto – tibor.shanto@sellbetter.ca 

Solution

As you may be aware I have the honour of being one of the presenters at this year’s Sales Performance Summit, the event is both live, and being webcast live simultaneously to anyone with a web connection, even the folks on the International Space Station. What I found interesting is the number of people who are questioning the wisdom of charging for the simulcast, many of those questioning us are themselves sales pundits. They point to great content being made available on the web for free; or that the webcast will cut into our live attendance as people can participate from their office and save.

But here is the deal, I believe buyers are smarter than that, tire kickers maybe not. People know value, and they are willing to pay fair value for value received. Much of what is available for free on the web has a hidden cost, usually some form of product promotion or some other offer made during the presentation. Organizers of the Summit have committed to no selling, no hidden cost, just actionable insights for improving Performance Management.

There is nothing wrong with free webinars or web events, I have done them, and will do them in the future. Everyone knows what they are signing up for, and in my case, can’t speak for others, I always make sure that there are some specific take aways, both in terms of steps or things attendees can do to improve their sales, and or tools they can use over and above whatever product the sponsor may offer.

I remember working with a global brand, one specifically known for their selling prowess and power. As we got down to the short strokes, the buyer, a director of Sales Productivity, asked me to offer the initial session free, this would allow them to assess how to roll it out to other geographies, a show of good faith on my part. I pointed out that my mortgage holder offered no such sign of good faith for having my mortgage.

To make his point, he told me that another provider delivering a different program is doing a “pilot” for free. I pointed out that I do not set pricing for them, but I do for Renbor, and the price quoted was fair value. He asked why I would suppose that the other party would be willing to do that: “Maybe they want my business more and are willing to show this gesture?” I offered, “Maybe they know what their stuff was worth”. We went back and forth, and I finally said “OK, if I do it free, and when we get around to price and negotiations, and your team asks me how to handle it, I will tell them do what I do, give it away free. Or we can come to a mutually fair price point and I can share with them how to not get bullied on price” I am not sure what he like less, being called a bully or having to pay for the program.

There are three things you need to have in place to avoid the price or free trap:

  • Understand real value you bring to the buyer’s objectives
  • Be able to articulate, demonstrate and validate that you have helped other buyers achieve those objectives, and that they were able to attain a measurable ROI at your full price. This takes work and a deep understanding of the buyers objectives, their process of achieving those objectives, and barriers that have prevented them for getting there that you have successfully broken down
  • This is the hardest, have enough of a prospect base where you have the ability to turn away from bad deals. Without that, you’ll be able to rationalize any price, even the absence of one. Want to win the price game, learn to prospect.

Remember free is a four latter word, one that begins with the letter F to boot!

Tibor Shanto

Live sold out

Neither Either0

By Tibor Shanto – tibor.shanto@sellbetter.ca 

Confused by Too Many Choices Arrow Street Signs

While I am all for having a sales process or road map, there is plenty of room for choice, and there are some elements of sales success that are achievable via many paths. You have choice within a defined structure, the result is pretty much the same regardless how of the path taken. As a seller, your success will not be adversely impacted by the choice. On the other hand, there are areas where you are presented with the option between two paths, but one does not deliver the same results, where one path may be easier but consistently yields lesser returns than another, at times more demanding alternative. Often the alternative delivering better results may not be as comfortable at first, require a different effort. One common reason people will choose the less effective/more comfortable route is they do not want to come across as being “salesy”, you know for some, just asking for the order is “salesy” or pushy; or that’s what they tell me.

An example of the above is “choice” or “options”, specifically sellers giving the buyer options for no real reason or benefit other than their own comfort, not at all that of the buyer. Too many sales people offer up choices or options to their buyers throughout the sales cycle, where they are not necessary, where they could negatively impact the sale or momentum, and are usually deployed not because they make sense for the sale or the buyer, but because they help sale people cope.

Here is a common example early in the engagement, while on a prospecting call. You’ve positioned how you can help them achieve objectives based on you experience and credible validation, and you get to the point where you ask for the time to meet, and instead of creating focus and a call to action, too many sales people make the mistake of saying:

“So what’s better for you, Monday afternoon or Tuesday morning?”

Why? Don’t you know when you want to meet, don’t you utilize your time efficiently and set appointments based on where other meetings take place that day?

Rather than communicating “gee any time is good, I got nothing else going on, so Monday afternoon, Tuesday morning, makes no difference to me, any one of those, please I need an appointment.”

There really are those who tell me they don’t want to be pushy, they don’t want to “box” the prospect. So now instead of thinking about what you called them about, any potential value that you may have communicated to this point in the call, you get them to go back and forth between two points in their calendar, instead of focusing on one time.

Hands down, it is better to give them one time, focus them on that time in their calendar, and make it easy for them to say yes, or no, you can always offer up the other time at that point. But why introduce slackness into an otherwise tight call? Is it for the buyer’s benefit? No! If you want to make it easy for them, especially if you have set up the call well to this point, give them one specific time, their eyes will go there and bam! Give them choice, they’ll look at both, maybe see that they have a meeting Tuesday afternoon that they are not ready for, and what could have been an appointment becomes “It’s not the best time, give me a call next month”.

Another example where offering choice is not the best plan is at the time of proposal, too many sellers offer up options, A, B and C. Some even believe that buyers will always go to the middle price point, on the other hand if you offered only one choice, you would get a yes or a no, giving you the option of offering the mid-price at that time. As you have heard me say in the past, good sellers are subject matter experts, as such, you should demonstrate that expertise by putting the best option forward, not a range of options. Order takers offer options, because they do not create the sale, just react to it.

If you have truly sold the deal, addressed the buyer’s objectives, and have gotten confirmation of that throughout the sale, then the only choice is the best one based on the process that just unfolded. For me, go with the best, other than that, I’ll have neither either.

Tibor Shanto

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The Value Deficit – Sales eXecution 2710

By Tibor Shanto – tibor.shanto@sellbetter.ca 

Sales scale

Sales is very much a balancing exercise, somewhat like a scale, to keep balanced, you need to ensure that there is as much weight on one side as there is on the other. When there isn’t it could lead to problems for the parties involved. The most common example of this in B2B selling is price. More often than not, when a sales person finds themselves negotiating on price, or selling on price it is the result of not having created enough value to merit the price they are demanding.

It is easy to find one’s self with a value deficit just at the wrong time, and having to give unnecessary concessions to win the deal. A fundamental element is a lack of an understanding of value, after all, value is a subjective thing. Like beauty, value is in the eye of the beholder, some line up to pay for a high end performance auto, while others are loath to pay full price for even the most basic vehicle. Part of the problem is a lack of definition around value, just because it is subjective, does not mean it cannot be defined, especially in the context of a sale. This is especially so in a day when everyone is so keen to rest on their value proposition. As I have said in the past value propositions are useless, you can put lipstick on it but it is still a pitch.

So let’s define value, especially in a way that allows you to avoid a value deficit. This is an actionable definition we use with our clients:

“Buyers will see value in those offerings that remove barriers, obstacles, or helps bridge GAPS between where the buyer is now – and – their objectives!”

By helping clients move towards their objectives, or better yet achieve them, you can build value right from the start. Add to that the needed step of quantifying the outcomes you can deliver, you can in effect quantify the value you deliver, and expand that to the value your buyer will realize, which can be greater, especially if you sell it right. By that I mean that if you can help the client see how achieving specific steps or objectives will help open up opportunities beyond that, the payoff will seem and in fact be better than initially understood, and worth paying for.

As an example, let’s say you can demonstrate that you can help the client improve manufacturing process. A good enough objective and outcome on its own. But why stop there, why not explore further, further than your product goes, with the improvement in the process, can they reduce the cost of good, which can both reduce their requirement for operating funds and increased margins. With better margins, can they increase targeted market share, which in turn helps them negotiate better terms with suppliers, etc. Most sales people stop short of this because their product may not be directly delivering or involved in all steps taken, but all I need to be is the catalyst, not doing every bit of it. By extrapolating the value I bring to their objective, I can create a value surplus, or at the minimum, avoid a value deficit.  In other words, build value for the buyer, not value for your product.

What’s in Your Pipeline?
Tibor Shanto 

Sales Leaders – You Get What You Ask For – Sales eXchange 2372

By Tibor Shanto – tibor.shanto@sellbetter.ca

Money on scale

Price is a ‘big’ subject for all in sales, right from those developing product, to marketing, all in the sales organisation, and as important as any, the customer. We all have an economic and emotional involvement in it, yet it often continues to be a challenge for all in the chain.

I think one reason is the message many sales leaders send their teams, and their peers in the revenue generation process. I think in some terms, it is the mixed messages they send that confuses and leads to undesired results.

One obvious factor and lever is incentive. I keep hearing, as I have heard throughout my sales career, that incentive drives behaviour, if so why do so many companies (senior sales executives), continue to reward sales people on the price they get, rather than the profit that sales person contributes? I used to work with someone who kept insisting that companies go out of business due to lack of sales. He would never accept that in fact businesses go under due to a lack of profits. Even when I showed him that many businesses had their best revenue days when the bankruptcy trustees were holding liquidation sales.

I have fund that companies who incent their sales people based on gross profits are consistently better aligned with their reps, and achieve mutually better results. But many continue to base incentives on top line gross revenues, others on some proxy for revenue or some model of potential residual revenue stream to materialize in the future, even when the incentive is paid out now.

Sellers who are paid on revenues only, are more likely to discount, and advocate for the buyer, rather than drive mutual value. As we all know, a $500 discount on a $10,000 piece of equipment, can have little impact on what the reps gets paid, but could be a huge part of the gross or net margin.

One has to wonder why in today’s economy anyone would pay out based on top line vs. GP. One company I worked with couldn’t really tell you what their margins were, as a result they went with paying on the top line, which only compounded the issue, as they didn’t know if commissions were wiping out the last bit of profit, or… At the end of the quarter they were either profitable or not, but either way not by design. This may be an extreme example, but I don’t think it is rare.

It is not just about the company’s profits, but many who pay on GP, are able to attract and develop better sales people. Sales people who want to and sell at full value, a true win-win-win situation. The same instincts that allow sales people to choose a discount when paid on top line, drive sale reps paid on margin to deliver value for all three key parties. No value for the client, no sale, no commission; no discounts offered, because those come as much out of the seller’s pocket as the company’s. Clients don’t get gouged, because there would be no sales, no commission.

There is no doubt that switching from top line to margin payouts cause reverberations, and push back from sellers. But I am willing to bet that only from those who can’t survive on the crumbs they leave in any given deal. Sometimes you need to shake things up, thin the herd to make room for those who want to feast along with the customers and their employers.

The 3 Legs of Sales Success0

By Tibor Shanto – tibor.shanto@sellbetter.ca

Stool Success

As you finalise your 2014 sales plans, it is good idea to review and commit to some of the basics. Some of these may not be fashionable, on the other hand nothing is more fashionable in sales than exceeding quota.

As with many endeavours, we sometime focus too much effort on style and take our eyes of the fundamentals. As Michael Jordan once said:

“…You have to monitor your fundamentals constantly because the only thing that changes will be your attention to them”

While the framework for the fundamentals are process and quality of execution, the key fundamentals that we need to continuous focus on regardless of methodology or approach are:

  • Size of Sale (or order)
  • Volume of Sales
  • Price integrity

Size of Sale – Refers to the specific size of the order, specifically in two forms. One is the result of the type of prospects you pursue; if you are selling stuff measured in units, the larger the target company, the more units they will require. Since in most instances, the effort required to sell a $50 million dollar/40 employee company, is often not that different than selling a $100 million/100 employee company, why not focus on the larger end of the scale. A variation on this is a recent example from a company I worked with. They found that of the three batteries they sold, the mid-range one was the best product/value for the price, for both the customers and them, but people tended to opt for the entry level battery. They discontinued offering the bottom end, their unit sales did not decline, and their revenue and margins increased.

It is no different if you are selling services, if you target companies that can ‘consume’ more of what you sell, you will sell more by avoiding those who consume less. Since the time you have to make the sales does not change, why not target those opportunities that can give you size or scale. You can always go down stream once you have sold the ideal size first.

Volume of Sales – this is different than the first point, it goes more to how many sales you get irrespective of size. If right now you are doing four deals a month, and were to increase that to say 4 ½ deals per month, you would move to 54 sales a year, a 12% increase. Even if you have a long cycle, big ticket, say only six sales a year, increase it to 7, may not sound like much, but.

This involves better use of time, primarily through the discipline of disqualifying those opportunities that will not close now, they may close a year from now or even in the summer, just not now. This is where your process gives you the confidence to say no, rather than spending time to try and get a yes where one does not exist. Like the old gold rush 49ers, the quicker they got rid of the sand and stones, the quicker they got to the gold, increasing their daily take. Get rid of the crap in your pipeline, and you’ll work with more gold.

Price Integrity – as straight forward as it gets, the less we concede the more we succeed. Resist the temptation to “give a good price to get in”, because you will never recover.

As you evaluate your opportunities, it is important to consider how any or all of the above can be leveraged to deliver better and consistent results, and how misalignment can be detrimental to success.

With all of the above methodology and improved execution will help you sell more to more of the right people, but merely adopting a methodology without target one of the three elements above is not enough. You may want to start by targeting one, or better yet explore opportunities that allow you to move the dial on all. We use a simple matrix allowing clients to plot opportunities based on these elements with the added element of time. This allows them to visualize and focus on the right number of highest value opportunities sold at full price.

Everything we do in sales should have a positive impact on one or all of those three elements. It is when we take our eyes off these fundamentals, that the level of effort, training, coach or other initiatives, will always be greater than the results. The start of the year, (quarter, month, day) is a good time to refocus.

What’s in Your Pipeline?
Tibor Shanto

Sellers – You Should Cut Costs!2

By Tibor Shanto – tibor.shanto@sellbetter.ca

Saving Dollars

Cost cutting is nothing new, everyone is doing, it including your company, which is why it is hard to understand why sales people are so insulted when their clients do it. Don’t get me wrong, I am not suggesting you should grin and bear it, but it is time to take more proactive and profitable approach to something that is here to stay.

Lower level buyers look at the mandate to cut costs in a somewhat “linear” fashion; they see it as a need to reduce the costs right across all products and services they purchase.  It’s the easiest approach, they need to reduce their spending by 10%, so they proceed to slash all their vendors by 10%.; no one gets insulted, they don’t have to think much, and they get to their goal.  All vendors are treated as equals, even if they are not of equal value to the company.  Sellers get to tell their managers about the great relationship they have with the buyer, “if not for the strength of the relationship it would have been much more than a 10% cut”.  Buyers see the effort in figuring out an alternative as just simply being above their pay scale.

Sellers can bitch and moan but they have only themselves to blame. First because they put too much faith in a one sided relationship. More importantly because they get the “deer in the headlight syndrome” when they hear that the buyer is looking to cut cost. Most of the time buyer does not get a mandate to cut every line item in their budget by 10%, but rather that to reduce their overall spend by 10%. Meaning a motivated seller can take the lead and help the buyer out in a different way.

If there is a real relationship, implying some trust, some reliance on the seller’s expertise, the seller should be in a position to help the buyer cut their total budget in more creative ways.  Looking at the entire eco-system, and helping the buyer find a number of efficiencies that extend beyond their product/service.  For example, there may be opportunities to automate aspects of the buyer’s process, this may eliminate or free up other resources to apply to the company’s core offering.  That is a cost saving, without a cost/spend hit to you.  At times, achieving that may even put you in a position to sell them more “stuff”, they save on the total, and you not only avoid a cut but get more.  Not always possible, but helping them find “other savings” is.

This is where if you view and present yourself as a Subject Matter Expert, that conduit to industry best practices, you earn the right to have and drive that discussion.  But this is something you need to build to right from the first meeting, and at every opportunity.

The value of a real relationship is in how you can avoid being cut with the others, or even grow your revenue; not in how well you faired against the also rans.  So go ahead, help your buyer slash their spend.

vote

What’s in Your Pipeline?
Tibor Shanto

Leveraging Price Ratio To Win The Right Deals1

By Tibor Shanto – tibor.shanto@sellbetter.ca

Rpl round

Pricing continues to be a key factor in winning or losing sales opportunities, and while few vendors take pride in being the low cost provider, at times it seems they set out to be just that, or they take few steps to avoid it being forced on them. There are times when companies consciously use price as a temporary strategy to gain market share, or directly impact a competitor. Rarely have I met a VP of Sales who says:

“We’ve decided to be the cheapest on the block, so long as we don’t go broke, I want you to teach my guys how to get to the price discussion quickly, demonstrate just enough value to justify that price, and then let our ops team manage diminished expectations.”

I say rarely, because I have met leaders who seem to work like that, but don’t articulate that way. I have met consultants who suggest “win the business on price, and then keep it on service.” The challenge is that few can recoup the concessions and get the price back up to where it should be and are stuck at that lower price band, and corresponding margins. Of course during the next vendor selection round they may have to lower the cost just to keep the account, or replace it, when someone undercuts them. Either way expectations have been set.

No matter what many will tell you, it is more often about buyer’s perception about the relationship (as in relative to, not relationship as in the soft-sell mantra) between price and expectations, and not price and deliverables. Promise great – but then deliver only good, and you could suffer; promise good and deliver good, you meet expectations. This is why “under promise – over deliver”, still works.

The fact that it is more about expectations rather than deliverables is actually a good thing for those sellers willing to sell value rather than price. In the past I have shared the ”Actionable Definition” of Value; it centers the conversation, the sale, on the buyer’s objectives, which gives one the opportunity to leverage the give and take between price, value and expectations.

One of the first things we need to understand and establish during the Discovery stage of the sale, is the buyer’s specific ratio of value/expectations to price; think of it as their level of conviction. Here is how it works, buyers are looking for maximum price concessions while giving up the least amount of value. If they can get the seller to give up one unit of price, while at the same time they give up less than a unit of value in return, then they perceive themselves to be ahead, and the ratio is less than one. Based on experience, this tends to be the case the majority of time. If the reduction of value is equal to the price reduction then it is one-to-one.

What’s interesting is that it is this same ratio that has led some value driven vendors lose deals they feel they should win against lower cost providers, the ratio works in the lower cost provider’s favour. They are willing to give up “the right little bit” of service for a greater savings. The key for you is to understand not only what those element are, but where they rank for the buyer. This will vary for each buyer, which why focusing on objective is a must, and not taking a cookie cutter “solutions” or the usual consultative approach, which will leave them short and disappointed every time.

If all that wasn’t enough to manage and deal with, you also need to clearly understand your competitors, their offering and cost structure. Incremental improvements in process and technology, can change the landscape, competitors may be in a position to deliver the same level of service as before but a reduced cost, and when that occurs, they can leverage the ratio in a way that creates a win-win with buyer, and a lose-lose for you.
As with most things in sales, once you incorporate this line of thinking into your repertoire, you can also use it to disqualify buyers who are purely price driven and will suck every concession out of you without reciprocating in any way. While everyone is trying to economize, smart companies and worthy partners understand that a weakened supplier is not good for anyone in the long run. Without profits, R&D, innovation and other value elements will suffer and by extension so will the buyer’s business.

The price dance is not going away anytime soon, but understanding core blocks of price, and how it relates to the buyer’s expectations and more importantly their objectives will help you build value based relationships that will last long enough for you to get a good payback on what it cost you to acquire the client, and work with buyers who understand that profits are important throughout the ecosystem.

What’s in Your Pipeline?
Tibor Shanto 

Sales Immersion (#video)0

By Tibor Shantotibor.shanto@sellbetter.ca

Biz TV

We often hear the expression: “Follow the Money”.  Well in sales that pursuit always leads to the buyer and their reality not ours.  To get the most out of sales, you need to immerse yourself in the buyers world, not work on making the opposite happen.

Here is what I mean:

Sales immersion

 

What’s in Your Pipeline?
Tibor Shanto

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