Let me ask you a question: What impacts people more – the threat of loss or, the possibility of gain?
Recently I read a fascinating story, about a professor, that sheds some light on this.
It all starts with the auction of a $20 bill to a group. There are only 3 simple rules.
- All bids need to be in $1 increments.
- The highest bidder wins.
- The 2nd highest bidder still has to pay up. In short, he loses.
Whenever he conducts this experiment, people jump right in. After all, it’s a great deal—again – to get a $20 bill for two bucks. But, at about the $12-$16 dollar mark, people start seeing that they’re caught in a trap.
When the bidding hits the $20 phase, it’s all about loss. Yet, believe it or not, the bidding continues, often up into the hundreds of dollars. And, this happens every single time he does this experiment.
What happened to common sense?
Why would seemingly intelligent people (like you and me) do this to ourselves? Two reasons. Loss aversion – which is much more powerful than gain. But also, impacting this behavior is a commitment to the path they’re on.
The end result? They get caught doing irrational things that actually hurt them.
Certainly we can use a “loss aversion” strategy with our prospects. But today I want to focus on YOU.
How loss aversion hurts your sales
Research by SBI, a sales & marketing consultancy, shows that each month 60% of forecasted deals fail to close. I’m talking forecasted deals. How could this be? You’re no dummy when you forecast them.
The truth of it is, that’s the loss aversion syndrome at work. We don’t want to lose good prospects – especially after we’ve invested so much time and effort working with them. So we mistakenly – and irrationally – keep thinking they’re going to close.
Usually, they don’t. The longer it takes to close a sale, the less likely it’s ever going to happen.
So here’s my challenge to you today. Go look at that pipeline of yours. What’s real and what’s not? Get rid of those prospects that you’re hanging onto. When you do that, you’ll open the door for new opportunities to come in.And that will have a big impact on your sales success.