Everyone Has a Budget (part 1)
Wednesday, November 24, 2010 at 12:16PM I have this budget conversation a few times a week when discussing new projects with existing clients or when interviewing prospective clients.
Me: What is your budget for this project?
Gee I don't know, we haven't really thought about it.
At this point I have to wonder if a) I'm dealing with someone for which money is no object, b) they really haven't thought about the budget yet or c) they have a budget figure in mind, but they just won't share it with me under the belief that "the first one to mention price loses." Back to the conversation.
Me: Well, it would be tough to quote this blind. Any ball park you want to give me?
Well, we trust you. You're the expert on these things.
This is tough. You need to know the value expectation to provide a valid scope of work and quote, but you need the client's price neighborhood to understand their value expectation. If you know the client well enough you can get candid and just say "Really, I need to know how much we have to work with or I'm going to give you a number that's way too low or way too high. I might get lucky, but do you really want to roll the dice and try to get lucky with something this important?"
As Michelle Golden (@michellegolden) pointed out to me a client's indication that they don't know what the budget should be is a great opportunity to explain the value you can add. She's absolutely right. The art to pricing is being able to discern when prospects truly don't have a budget expectation from the times when they simply won't share it with you. In the former you can educate. In the latter you may be dealing with gamesmanship or poor negotiating skills.
If you don't know the client very well yet and they just won't share the budget expectation you can choose not to quote or you can quote blind. When you quote blind here are three rules I follow that may help you.
- Put yourself in the client's shoes and quote based on what you would pay WITHOUT making assumptions about the client's ability to pay or thriftiness. You know the scope of work, or at least the scope you are willing to commit to. You have a value proposition you are willing to accept based on an ROI you think favorable. If the client won't give you theirs, use yours and quote accordingly.
- When in doubt include it in the scope. For instance, if it is hard to know how much information the client has at their fingertips and how much you are going to need to dig up yourself, assume you will need to assist in the information gathering phase. It is better to do this than to go back later and admit you assumed the picture was rosier than it really turned out to be.
- Explain your position. More information yields better quotes and better execution. If the client won't share information with you they need to understand the position they are putting you in and the disadvantage this creates for them. More on this in part 2.
However, seriously consider not quoting blind. Just say "It's our policy not to quote until we are given some budget parameters from the client. Price is too important an issue for us to guess at what you want to pay." This takes guts and I don't do it as often as I should.
Part 2 is for clients. It explains how you hurt yourself when you fail to set budget expectations with your vendors and professional partners.
A special word of thanks to the #geeksunite community for their input and contribution to this post, especially @michellegolden @taxman45 @deductme @DeepSkyAcc @JodyPadarCPA and @CFarmand. You guys are awesome.
Reader Comments (4)
Great post I like the approaches to handling this type of situation. I have found myself utilizing Michelle's approach when prospects come to the table with an inherently low budget, generally developed by someone quoting/operating on volume in the industry.
Number 2 and 3 are great advice on how to handle the vicious circle we sometimes find ourselves in: Creating a budget to arrive at the budget. Information and communication are vital.
Looking forward to Part II.
I really enjoyed this post and I want to share it with my small business consulting clients.
Thanks Kara and Dexter. Appreciate the feedback. "Creating a budget to arrive at a budget" Oh how many times have I done this?
Great post. When it comes to budgeting my clients I've always had an issue with quotes. My CPA business will benefit greatly from this article, thank you.