On an online forum in which I participate, someone was lamenting over this very question recently. What ensued was a lively discussion over exactly why so many potential customers seem to be cheapskates. And being a person that’s learned to leverage my various marketing activities (such as posting on a forum and participating in Yellow-Tie), I figured my replies there would make a good article for the newsletter. So here goes.

Bad Luck or Lack of Experience?

Some people just seem to have a knack for attracting the very best customers. Others are not so lucky. Not long after forming Jenesis Technologies, my then-partner and I went on a sales call together. The prospect told us that he was “the best in the business” and wanted a website to reflect that. So we spent more than two hours discussing the features and functionality his website was to have, then ran back to the office and spent a few more hours preparing a detailed proposal. Although our price was well within what a typical project of that scale would cost, when we called the prospect back with the quote, we were shocked and dismayed to find that we were about 10 times higher than he had “expected” to spend.

Our lack of experience taught us a valuable lesson: that it’s important to be on the same financial page as your prospect, especially before creating a lengthy quote. After a few more experiences like this, we had learned the all-too-familiar mantra of the service provider: “Always ask for the budget.” Behind this mantra lies a worthwhile goal, but there’s a problem – it may very well help create the type of client we all want to avoid. Here’s why.

The Budget Question: A Flawed Approach

When you ask for the budget, what you’re trying to do is reconcile two figures:

1. What it costs to do the job, and …
2. What the client is prepared to pay.

Using this approach, if the job is going to take 4 hours at $50/hour, then you should charge $200 and hope that the client is prepared to pay at least that much. How do you do that? The easiest way, according to the mantra, is “ask for the budget.”

Unfortunately, the “easiest” way is not necessarily the best way, because there is a third figure that you are overlooking altogether: the value of the project to the client.

What You Spend vs. What You Get

Imagine that same 4-hour project saving your client’s five employees 5 minutes each, every time they performed a function. Suppose those five employees performed that function 20 times a day? That’s 500 minutes, or 8.3 hours – a complete workday! If those employees each make $25K a year, your 4-hour project is going to save your client $25K a year! Do you think that’s worth more than $200? (Actually, this is a real example, and the guy – not me, unfortunately – closed the deal at $14,000.)

The fundamental thing that people miss is the economic reality of pricing. Price is not a function of your costs or time involved, but of value to the purchaser. It doesn’t matter how long a project takes you to complete it, or what the product or service costs you to provide it. What matters is, what’s it worth to the client?

When you talk budget, you force the prospect to look at what he has to spend, rather than what he’s going to get. The subject of cost must be addressed and agreed upon beforehand, but never outside of the context of objectives, value and ROI. If you had only a budget discussion with the client with the 4-hour project, he’d be thinking either, “Gee, I paid only $200. That wasn’t too bad,” or “I wonder if he overcharged me” – instead of, “Wow! I saved $11,000 this year, and I’ll save $25,000 next year!” Who would he be more likely to hire again, the guy who charged him $200 or the guy who saved him $11,000?

Why Asking for the Budget Doesn’t Work: 3 Reasons

I don’t ask for a budget for these reasons:

1. It’s pointless.
2. It’s the wrong approach.
3. It’s backwards.

1. It’s Pointless.
To give an intelligent answer to the budget question, the prospect must have done his due diligence. That is, he must have a realistic idea of what he’d like to spend, based on having researched costs vs. ROI. (Maybe it’s different in your industry, but I’ve yet to come across a prospect that’s actually done this.) Any answer he winds up giving is usually a number he’s pulled out of a hat – something he hopes or expects to spend, not something based on reality or thoughtful business analysis.

2. It’s the Wrong Approach.
As I said earlier, asking for the budget forces the prospect to look at what he has to spend rather than what he’s going to get. If the prospect hasn’t considered return on investment, he’ll be focused on price instead of value. And unless you can get your prospects to see it this way, you’ll forever be asking the question: “Why are all my customers cheapskates?”

I'm a website architect, and I see part of my job as helping the prospect determine a website’s value to his business. I do that by getting him to first verbalize what he wants to accomplish (i.e., overall business objectives), figuring out how the web fits into that, then determining cost vs. return. ROI isn’t always about money, but it is always about increases or decreases. If a website will increase or decrease something that the prospect wants increased or decreased, then it has the potential to create value.

Value is whatever the person perceives it to be. One client wanted me to redesign his website because he was “too embarrassed” to put the URL on his business cards. With that objective, he wasn’t expecting much of a return, so its “value” in his mind was only a few hundred bucks. As we started talking about his “big picture” business objectives, he began to realize how he could use a website to help him get more clients. Suddenly its value increased, and he ended up agreeing to pay more than he originally had “hoped” to pay.

Don’t misunderstand – discussing value before price is not some “technique” to get the prospect to pay more money – it’s sincerely helping him determine what’s best for his business. If the cost isn’t going to justify the return he’ll get, then it’s truly not worth it for him to proceed, and by discussing value, you’ve helped him see that.

3. It’s Backwards.
At some point, you must have a discussion about price. But if you talk price first, and your price is “too high,” then you’ll be forced to talk about value to justify your price (e.g., “Yes, Mr. Prospect, you can pay less, but you might get something that is badly designed … ”). Whenever you do this, you are essentially trying to convince the prospect that he should value something that he does not, or value something higher than he does.

Suppose the discussion with my client had begun with price? What I’d be saying is, “The cost of not being embarrassed over your current website is $x,xxx.” Now, in his mind, he’s already placed a value on “not being embarrassed.” So he does some mental arithmetic, and, when the numbers don’t match up, he concludes, “It’s not worth it.”

Bear in mind that I don’t even know on what he's basing this value judgment, because I haven’t asked. So, when I find out he had really expected to spend much less than $x,xxx, if we were talking only budget, I would try to show him why he should place a higher value on “not being embarrassed.” Or, failing that, I would conclude that he’s a cheapskate.

The secret to turning this process right-side up is not that difficult. Once you know what the prospect wants to increase or decrease, determine if the increase or decrease will result in a return that exceeds the cost. For a person whose only expected return was “to no longer be embarrassed to show clients my website,” $10,000 might be a ridiculous investment. But if you could demonstrate, for example, that a new website drawing four new clients a month is within the realm of possibilities, and that those four new clients represent $1,000 each – that’s a yearly increase of $48,000. Suddenly, even $20,000 doesn’t seem so ridiculous.

Technician or Businessperson?

A common complaint in my industry is that clients don’t appreciate “good design” and the amount of work it takes to come up with a concept and bring it to life. It’s true that most people outside a given field have no idea how much time things actually take. In a world where products are mass-produced and services outsourced to the Third World, most of what we buy is now judged on cost alone. In the web industry, for example, a lot of people erroneously compare professional web services with what their nephew can do with some cheap software.

If you’re like me, and you’re in the service industry, then you’re probably in business because you have a technical skill that you’re good at (and hopefully enjoy doing). At some point, we must decide if we are a businessperson or a technician. A technician focuses on the thing that’s being built; whereas, the businessperson focuses on the problem to be solved. A technician first looks within to define his skills, and only then does he look outward to ask, “How can I sell this?” If you’re a technician, the customer is always the problem, because he never seems to want what you’re selling, at the price you offer it.

A contractor is paid for the time it takes to produce something, but a businessperson is paid for the result he produces. Sure, any “nephew” with Microsoft FrontPage could design a website, perhaps even a very good one. But can that nephew increase Uncle Bob’s gross revenue by 10 percent? Business owners and decision-makers (the people to whom we’re selling) understand results. They generally don’t appreciate things like “good design” or understand how long things take. If you want to sell to them successfully, then you’ll need to talk about what they do understand and appreciate. I work on the premise that “nobody buys a drill because they want a drill; they buy a drill because they want a hole.” The website is just the drill. I start out talking about the hole.

Here’s what I mean. An existing web client wanted me to design his print ads, so we met to discuss some flyers, business cards, postcards, etc. But, in the course of this discussion, I discovered that the “hole” in this situation is that he needs to fill the vacancies in his new mini storage facilities, and he has no clear idea how to market, no set marketing plan in place, and no means to measure its effectiveness. On top of that, he has managers trying to sell who have little or no sales experience. So, instead of having a few ads to design, I’ve opened the door to providing marketing consulting and sales training, and have invited my client to join Yellow-Tie. Not bad for a few hours’ work.

Want to get your clients excited about your product or service? Then start talking about the hole, and not the drill. Talk value, not budget, and watch those “cheapskate” clients become a thing of the past.

Related Links

Clients or Grinders: How Understanding the Three Market Types Affects Your Success, by Ron Lindeboom, Creative Cow

Too Poor to Buy Cheap, by Bryan Eisenberg, ClickZ

From Value Communication to Value Creation, Monster Sales
 

About the Author

John S. Tabita is senior web architect at Jenesis Technologies. John specializes in boiling the “technobabble” about the Internet into information business owners can actually use to make smart decisions about their web strategies and produce a positive return on their investment.