Happy Friday, everyone!
Here is this week's poll question:
At what point in the sales process do you ask a client about his or her budget? How do you approach this part of the conversation?
Looking forward to reading your replies!
If it is a new advertiser, I asked shortly after introductions. Asked what they had planned to spend on advertising. Then I asked if that was just for Radio or for all advertising. It makes the rest of the presentation easier as you know what you have to consider in your approach. If they have been advertising with us for sometime, and they have a request for a promotion, I start with what did you plan on spending. I think the earlier you find out what their perception of advertising cost is, the better your selling relationship will be. As a former manager told me, get the elephants out of the room and eat your toads first thing and the grass will be green.
It's tough to ask "the budget question" on a sales call, especially with a new prospect. The client doesn't know you, doesn't trust you yet, and may be reluctant to give you the information. In a first-meeting scenario, I avoid asking any advertising questions at all for at least a half-hour. I want to learn as much as I can about the business first -- and build at least a bit of trust -- before talking about what they spend on marketing.
Once I get there, I ask for permission to ask about advertising (they never say no, but once they say yes, it's a lot tougher for them to refuse to answer). Then I ask them HOW they arrive at the budget. It could be a number handed down from above, or a percentage of sales. Often there's no process at all -- they're just flying by the seat of their pants.
Once I know something about the process (or lack of a process), then I ask for the number.
You can find the method described in more detail here: http://philbernstein.com/how-to-find-the-money-a-powerful-3-question-process-to-learn-the-clients-budget/
I typically do not ask a client about their budget. Instead, I ask "What is one customer worth to you?" This question will not only help you in the proposal process, but also with the perception of what a client expects to get in return for their investment.
Rather than every approaching the "budget question", I figure it out for myself. Let me tell you a story and you will see why. Answer these questions for yourself based upon the story I am about to give you:
THIS IS NOT A QUESTION TO ASK A CUSTOMER... THIS IS FOR YOU:
What is your budget for a new car today? Many of you will answer ZERO. Not in the market for a car.
Okay, I have a brand new Lamborghini Gallardo parked in front of the station. I owe $50,000 on it. It has a low book value of $200,000 meaning you could turn it over to a dealership today and make $150,000 cash. I need to get rid of it and I don't want to lose the equity in it which is my $50,000 which will happen if I bring it to the dealership. So to reiterate, you pay me $50,000 and you own this $200,000 car free and clear.
Okay so now what is your budget for a new car.. TODAY?
You see... what your budget it depends upon your circumstances.
NOW THE EXAMPLE. I want to sell advertising to a dentist. Here is what I do before I ever see him:
What is the average cost of a teeth cleaning? About $100
What is the closing ratio? About 100%
What is the margin on teeth cleaning? about 90% (It is incremental billing with no additional cost in overhead)
Okay follow me here:
If I bring in a new customer, they will get their teeth cleaned. $100. But the dentist will now bring them back every 6 months, so that is $200 per year. How long will they keep coming back? Lets say just 5 years. Thats now $1000. Now if there are four people in the family, they will all end up at the same dentist so we're looking at $4000 as the value of one new customer. Still with me?
Okay lets ask the dentist for $50,000 in advertising (yeah I know your rates are about $10 to $20, don't let this scare you). If the dentist put that $50,000 in the bank for five years, what would they make on it? .2%? MAYBE? Okay then WE are going to pay 20% interest on his money. This means we need to return to him $60,000. Oh but we said that the margin on teeth cleanings is 90%, so that $60,000 becomes $67,000.
$67,000 divided by the $4000 (new customer value) is 16.
YOUR job now at the radio station is to get 16 new people in the door the first year to give him back all of the $50,000 plus 20% interest plus 10% cost for doing cleanings. Here is my question to you.... With a budget of $961 per week, can you write ads compelling enough to get 16 people in to that dentist office this year? The answer is "Of Course" and now you present a budget of $50,000 and show him the ROI on it. YOU SET THE BUDGET without even talking to him about his budget.
As the responses from Phil and Chris (both exceptional sales professionals) demonstrate, there's more than one effective approach to asking the budget question.
Chris' approach, using readily ascertainable numbers (average sale, profit per sale, market share/potential, etc.), echoes that taught by Paul Weyland in his books, articles, and public presentations. What ROI is needed to make the investment of X worthwhile? Jim Williams used to take this one step further, using a report card metaphor: what $-result constitutes C-level success (breaking even + a modest profit); B-level success might be 10% above that, and A-level success 20% above a C. A bit cutesy, but it communicates.
Phil talks to advertising prospects as "the outside expert" - so he's in a position to ask more pointed questions at the opportune time to lead the prospect to the next decision. The "how do you arrive at a budget" question invites the advertiser to take a more thoughtful approach to opening his books.
Roy Williams has a piece on calculating the ad budget in one of his Wizard of Ads books. It's also available online as an article at Entrepreneur.com. I like the fact that his budget formula includes the cost of occupancy; obscure locations need more media; high-visibility/high-traffic locations may require less. It's a sound formula, and it certainly beats flying by the seat of one's pants.
I recently presented three plans to a new prospect, using the financial sizing formula Jim Williams taught. I said that the issue is not a schedule working vs. not working, but a matter of how-soon-do-you-want-the-results. More repetition in a shorter time accelerates the return. I know that this advertiser has great potential for growth once his ads start to work. He won't see it for a few months, but once he does, things will get better and better. As his cash-flow improves, he'll have more money freed up for additional advertising.
As Don points out, it's also a very good idea to find out what the advertiser is spending on competitive media (including donations to organizations to advertise in their programs, etc.). We may try to pay attention, but we rarely know the full scope of a prospect's current spending without asking.
