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Is Knowing the Prospect’s Budget Important?

December 1, 2015

As a follow up to my Quantifying/ROI blog, I see many sales people either give up or start lowering prices like crazy because a prospect has stated a budget that is very low.  Help the customer and yourself by quantifying the problem.  In this way, you and they can say whether their budget is reasonable or if there is a further basis to do business.

I was reviewing SPIN Selling by Neil Rackham.  SPIN stands for Situation, Problem, Implication, and Need-Payoff.  He has many examples of implication and Need-Payoff questions, which are vital in helping your prospect have a complete picture of what the implications are we they do not buy.   Once they put a dollar figure to the whole problem the budget seems totally secondary.  Or the problem may not be big enough to warrant your solution.  The point is that unless you put a number to the problem NOT the budget, you have no idea if your solution is worth it.

Here are some examples:

Example 1:  The Company needs to reduce inventory.  Questions you may want to ask are as follows:

What benefits would you get from a lower inventory levels besides just cost? Would reduce warehousing space be an advantage?  Can we quantify it?  Can you use that space for more production?  Do you have any idea how that will help your company and can we put a $ figure to it.

Let the buyer describe his or her benefits and quantify them, not you.

Example 2: The Company loses yield or has an unacceptable reject rate on finished products.  They believe that a new filter would help, but have a budget of only $50,000 to spend.   Questions you may want to ask are as follows:

So, you said you are looking for a new filter.  Could you please tell me how much yield you are losing?

Answer:  About 5%.

Can we put a number to it on a yearly basis?

Answer:  About $350,000 / year.

And how many years have you had this problem?

Answer:  5 years which is $1,7M.  Wow, I never thought of it in that way.

Okay then.  I realize your budget is only $50,000.  I have a solution which is going to cost $100,000 which will give you a payback in 3.5 months.  What is necessary to get this approved?  Or do you need help in presenting this idea to your CFO?

IN CONCLUSION: Of course budgets are important.  They are good qualifiers.  However, there are circumstances when the stated budget is inconsequential.  If you have not read SPIN SELLING book or been exposed to its principles you should spend the time.  For those that are interested I have an Executive Summary.  Just e-mail me and I will send it to you.


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