Sent by Jonathan Stark on March 8th, 2020
TPS STARTS TOMORROW: Lessons start tomorrow (Monday, March 9, 2020) for the Spring session of The Pricing Seminar, led by yours truly. You can enroll here. If you miss this session, your next chance to join won’t be until the Fall. Act now if you are ready to learn how to escape the hourly trap.
But before I get into how and why upstream/downstream matter in your pricing, what do I even mean by “upstream” and “downstream”?
I first heard the terms upstream and downstream in the context of manufacturing. Stuff that happens earlier in the manufacturing process is “upstream” and stuff that happens later is “downstream”. Typically, making changes (or mistakes) upstream will have a cascading effect later in the process (i.e., downstream).
Consider an automobile assembly line. If somebody makes a design mistake in the braking system for a car (i.e., an early issue, therefore upstream) then there are going to be extremely expensive problems created downstream (e.g., retooling, recalls, lawsuits).
In case it’s not obvious, a change made to address a problem downstream does not fix any root cause that exists upstream of it. In other words, a downstream fix for an upstream problem is basically a bandaid. Ideally, you would fix the problem upstream, but this is not always feasible.
The metaphor of a stream (i.e., a small narrow river) makes sense if you think about it. For example:
Let’s say Bob drops a forty foot rubber duck in the river behind his house, Carol - who lives a mile downstream of Bob - is going to be like, “What the…?!” and perhaps decide to lay off the box wine for couple days. Meanwhile, Alice who lives upstream from Bob will be unaffected by the giant duck and therefore won’t question her Franzia intake at all.
Here’s the thing…
In our world of selling services to clients, things like branding, marketing, messaging, design, architecture, etc are typically upstream activities that trickle downstream and potentially have a positive effect on sales.
Things that are downstream from sales would be cost-cutting measures like process improvement, software automation, outsourcing labor, support & maintenance, etc.
Whether you are selling something that lives upstream (i.e., a potential positive effect on sales revenue) or lives downstream (i.e., a potential positive effect on profits by cutting costs), your prospect believes that whatever it is that you do is connected somehow to them making more money or spending less money. If they didn’t believe this, they wouldn’t waste their time talking to you in the first place.
So... to effectively value price your contribution to the client’s desired outcome, you want to uncover this connection in your first sales interview.