Everyone Has a Budget (part 2)
Sunday, November 28, 2010 at 9:38PM In part one I talked about the budgeting process from the perspective of the professional providing a quote. Today I want to talk about it from the client's perspective. Engagements begin the first moment the client and the professional begin to talk about the project. By being more intentional during the earlier stages clients stand to gain a lot.
Clients who deflect questions about budget are often doing so as a negotiating tactic. There is a mistaken belief that "the first one to mention a price loses." I understand where this comes from and I've often used this tactic myself when buying cars, washing machines, lawn mowers and furniture. However, professional services are not the same as tangible goods, and one cannot use the same tactics that work so well on the used car lot.
The problem with professional services is that they have no shelf or inventory cost. Refusing to talk about budget when contracting for professional services is somewhat like asking a mechanic to build you a car from scratch without telling him how much you want to spend.
To stay with the car analogy you have three basic choices when you come in talk about a new engagement as a client:
- Describe the outcomes you want to achieve and specific goals of the engagement. This is somewhat akin to telling the sales person the make, model, mileage and options you are looking to purchase.
- Describe the budget you have at your disposal and the non-negotiable pieces you must accomplish. This is like the buyer who says "I have ten thousand dollars to spend. I'm not too concerned about the interior because I'm going to replace it anyway. What I really want is a solid engine and transmission that I can build a hobby car around."
- Do neither 1 nor 2 and tell the salesperson "I'll know it when I see it."
This third option is what we are trying to avoid. The client may not know it but this approach hurts their project in several ways. First, it wastes a lot of time. Rather than focusing on exactly what you need the professional stumbles around blindly hoping to either discover the outcomes you wish to accomplish or the money you have to spend. The thing about professionals stumbling around in the dark is that they don't appear very competent. If clients are going to lose faith in their professional it's more likely to occur at this point in the process than any other. Frustration builds and relationships fall apart before they were given the opportunity to accomplish anything meaningful.
Second, the more time the professional has invested in this "stumbling" process, the less room there is for pricing flexibility. Even the most progressive firms understand that time is money when working on low value tasks. And believe me, trying to guess a client's intentions is low value. Professionals will be forced to recoup these lost hours later in the form of a higher fixed fee.
Third, focus is lost. Regardless of the client's negotiating methods there really exist one or two or three primary objectives or outcomes that need to be accomplished for the project to be successful. Stumbling around for a couple of days or even a couple of hours takes attention away from what is most important. If the professional you are dealing with is incapable of meeting your budget expectation or delivering on your non-negotiables wouldn't it be better to know that in the first fifteen minutes so that you can move on and find the right person?
The best approach is to outline the exact outcomes you need to accomplish AND to come to the table with your budget in hand. Clients suffer an interminable fear of paying too much, but what they should really be focused on is accomplishing their objectives. Too much focus on paying the lowest price results in sinking dollars into commodity projects with no enduring value. Focus on accomplishing objectives at an acceptable level of investment results in an ROI that continues to pay dividends long after the project is over.
Reader Comments (6)
Great follow up post. Very helpful to see both perspectives. This week I have had two budget meetings with prospects and they were smoother than ever before with successful outcomes. I do not think I was so savvy as to consciously apply your approaches....so hats off to you on subliminal powers.
Really a very great posts..I read both and really very nicely written to make any to understand the matter thoroughly.For me your second post is very useful to understand from the client's point of view...Thanks for sharing valuable posts...keep on sharing
Thanks for the feedback. Sometimes I think we forget the client's perspective too easily.
Does everyone have a budget? We sometimes find that prospective clients have no idea what the costs will be to meet their goals, often by an order of magnitude. (We're an accounting firm speacilizing in DCAA accounting for government contractors.) This is where the car analogy starts to fall apart, I think: when I shop for a car, I have a pretty good idea of what that car will cost. Even without doing any research, I know a new minivan, for example, is going to be somewhere between $25,000 and $40,000. That's a very broad range, of course, but I don't go into a dealership and say "I'll give you $15,000 for that minivan out front." But a prospect will have an accounting system which is a mess, and expect us to clean it up and make it DCAA compliant for less than $5,000. How many professional services do businesses buy without an upfront idea of the ballpark cost?
Marcelle, thanks for the comment. Part 1 touched on those prospects that don't understand the value/price proposition which sounds like the problem you've described. Unfortunately some people DO stumble into the lot and ask for a $15,000 minivan, at which point the sales person spits coffee out his nose and ushers them to the used section of the lot. The trick I guess is 1) learning not to spit the coffee out of your nose and 2) helping prospects understand that if they want the new car smell it really is worth the extra $10k.
To answer your question we "lose" a lot of prospective business because the business owner's upfront idea of the ballpark cost is out of touch with the reality we can deliver. I've learned that the earlier we can qualify these prospects the better off both of us wind up. Thanks again for the feedback.
Honest, authentic, and transparent.
First three requirements, non-negotiable.
As a professional I choose to extend these to potential clients and expect these from them to start a business relationship.
A foundation on which we can build through communication and exploration of their needs and wants.
If they truly are in the "I'll know it when I see it" category, than I expect them to pay for the exploratory process at the "exploratory rate".