How many times have you been in the middle of preparing a BIG proposal just wishing like crazy you knew how much your client wanted to spend?  If I were a betting man (and I’m not!), I would bet at least more than once!

I know I used to do it all the time. I’d do all the research on the client and their business needs, brainstorm with my team on some great solutions, put together a fantastic team to do the work, and feel really good that we had a winning solution that they couldn’t refuse.

But, then we had to price it.  Gulp!  We had never talked about the price.  We had talked about vision and scope and timelines and process and resources, but we never once talked about price with the client.  So, there we were at the eleventh hour with the proposal due the next day and we were still scratching our heads over how much to charge.  We had already estimated our labor costs, overhead, travel expenses, and margin to do the work, but it seemed like so much money!

So, we began to second-guess ourselves….

• Should we discount our labor rates?
• Could we complete the scope of work within a few hours?
• Maybe we should low-ball this one in hopes of getting the next BIG one?
• Could we make our quarterly numbers if we took a hit on the margin just this one time?
• What if they reject the proposal because it’s too expensive?

Sound familiar?  Well, the story gets better!  Read on!

What I Learned from a Used Car Salesman About Pricing

(No, not the stereotypical used-car salesmen that people are scared of becoming! I’m talking about an honest, hard-working used car salesman.)

A couple of years ago, I had to buy a new car to replace my aging 1994 Ford Escort.  It had given me a lot of good years, but with 264,589 miles, it was almost time for a new one.  I rarely buy a brand new car, so when I say I had to buy a new car, I mean I had to buy a used car that would be new to my family and me.

So, I gathered up my wife and kids and off we went in search of a nice new used car for the family.  When we got to the first used car lot, a very friendly sales guy came up to us right away.

“Good morning, Sir!  And, helllllooooo pretty ladies!  How can I help you today?”

“We’re looking for a new car for our family.  Well, not a new car, a used car, but it would be new to us,” I explained.

“Weelllllll!  That’s great!  You’ve come to the right place!  We’ve got plenty of new cars and plenty of used cars, but they would both be new to you!  Haha!  About how much are you looking to spend?”

[Stunned silence.]

[More stunned silence.]

My wife and kids saw the shocked expression on my face.

“Mo, honey, the man asked you how much you wanted to spend.  Aren’t you going to answer him?”

“Uh, yeah, uh… uh…., I just…., well, it’s just that….Holy Cow, Mister!  Do you know what you just asked me?”

“What?” he replied, seeming agitated. “All I did was ask you how much you were looking to spend on a new car…I mean a used car!  Look, if I don’t know how much you want to spend, we could be here all day looking at cars that cost too much or ones that didn’t have the right features for your family or ones that were too old or had too many miles on ‘em.  All you gotta do is tell me how much you’re looking to spend and we can find you a nice car that matches your price.  I got a thousand options for you right here on this lot!  If you don’t want to tell me how much you want to spend, that’s fine with me, but it’s gonna take us a whole lot longer to make a deal because I’ll just be sitting here second guessing myself trying to figure out what you want to spend.”

Isn’t that a great story?  For me, it was another one of those BIG “Aha!” moments.

How to find out how much your buyer wants to spend

Ask!  

Plain and simple.  Ask, in the same language the used car salesman asked me.

“About how much are you looking to spend?”

Don’t get stuck asking “What’s Your Budget?”. Their budget most likely won’t be the price they are looking to spend.

Ask before you start writing the proposal or preparing your cost estimate.  By asking this way, you’re not asking them to commit to a price or spend their whole 2010 – 2020 budget on your project.  If you know how much they are looking to spend, you can match the scope, time, and resources of your proposal to the amount they want to spend.  Then, when you give them the proposal, they will be delighted, because it will represent “about how much” they wanted to spend.

If they tell you a number higher or lower than you expected, you can always adjust the scope of work.  Just make sure they agree with the scope changes.

Not every buyer will be able to tell you how much they want to spend, because a lot of times they haven’t thought it through, or maybe they are really just fishing around for cost “guess-timates” for budgeting purposes.  It doesn’t hurt to do some fishing of your own when that happens.  Here are some more questions you could ask if a buyer answers with “I don’t know.”

• Can you give me at least a range?  Are we talking a thousand or ten thousand or a hundred thousand?
• Have you had any other estimates that seem about right?
• Have you done any projects similar to this?  Do you know what they ended up costing?
• If this is coming out of your budget, what percentage do you want to set aside for this effort?
• If you just need this for budgeting purposes, is it okay if I give you a range based on the scope?  We can fine tune it when you decide to go ahead with the work.

Pricing has always been a sensitive subject in the selling process.

But it shouldn’t be!!

After all, everything has to cost something and your buyer doesn’t expect you to give your services away for free.  In fact, sometimes, the higher you price your services, the more perceived value they have.  Read our BIG blog on “4 Reasons Not to Discount Your Prices” for more about pricing and the psychology of payment.

We’re interested in your thoughts! Leave a comment below and let us know what other tips or techniques you have to find out pricing so that you aren’t wasting your time or your customer’s time.

Image credit: http://www.flickr.com/photos/horiavarlan/