What is List Price? And why does no-one buy at that price?

One of the first major mind-benders when entering IT Sales, is the concept of “list price”. This is the maximum price that a customer should ever pay for a product, and in a very competitive industry, customers always expect to buy products at a discount. Websites like https://itprice.com/ enable savvy customers to instantly find a list price for a product, so it is safe to assume that the list price of a vendor’s products will eventually make their way into the public domain, or may already be published.

So, what’s the actual price? To remain competitive in the market, vendor salespeople will provide the reseller a “discount off-list”. This is a core concept to IT Sales; the reseller will purchase the product at a “discount” or “discount off-list”, add their margin, and then resell to the customer. The jury’s out on displaying the respective “discount off-list” that the customer then buys at, some care, some don’t.

How is the “discount” calculated? Vendors keep the actual discounting structure highly confidential and ensure water-tight confidentiality agreements are signed with partners/resellers to prevent them from revealing these. Typically, a vendor will have multiple factors to reach a discounted price, which can include:

· The reseller’s partner level; the more a partner has invested in time, resources, skills or facilities related to the vendor, the higher their base discount

· New customer incentives; i.e. additional discount if the customer is new to the vendor

· Customer Loyalty; a returning customer offered better pricing (incredibly rare)

· Timed incentives; e.g. end of quarter, or end of year

· Deal Registration (see “What is Deal Reg.?”)

· Deal breadth; selling multiple different product lines or services from the same vendor

· Deal size or Volume incentives; discount for bigger deals

· Multi-year discounts; for subscriptions where a 2+ year agreement is purchased up-front

· Additional or non-standard; discount approved by the vendor sales team

· Pricing frameworks; multi-country customers may have an approved price in another country that they expect to be honoured.

From a reseller perspective, a key difference between a salesperson and a highly effective superstar is their ability to utilise all available incentives to increase their discount.

From a vendor perspective, yielding these discounts only when the reseller is adding value is key, and it is a fine balance between withholding discount, incentivising the reseller, and making the customer happy.

For most IT hardware vendors, the actual cost of the product is 5% to 10% of the “list price”. For example, a network switch that has a list price of $10,000 could cost only $500 to manufacture. However, added onto the raw manufacturing cost is research and development costs, set-up costs etc., which when linked to sales policy, will limit the discount that vendor salesperson can offer to the reseller, but often negotiable if the deal is big enough.