Budget negotiations aren’t always as static as they seem at first, as one of our readers discovered. Especially in a field where “low-cost” providers can race to the bottom on price, it’s important to highlight the difference between value and cost. This question came to us recently, and illustrates how vital it is to recognize a negotiation anchor and determine how to work around it.
Q: Advertisers frequently come to our advertising agency requesting services with their budget already established. This budget is often far too low for the solution or service they’re asking for. How do we ask our clients for a bigger budget without losing the business?
How to turn budget negotiations into a winning situation for you and your client
In a world of tightening budgets and greater sophistication within procurement departments, the phenomenon described above is increasingly commonplace. The first step is for you to understand what the clients envision the project being and how they arrived at their budget for the project. If the project is significant for one or both sides, request an in-person meeting where the sole agenda item is for you to listen to what they think their needs are.
Sometimes, as the more experienced party, you may be able to help them understand what their real interests are in the negotiation. What they think needs to be customized market research may be available off the shelf, or what they think only your most-senior executives can do may be delegated to less expensive staff. This process can bridge the gap between their budget and what you can reasonably deliver; you also build goodwill with clients by proposing less expensive options.
Educating your prospective clients about their own interests gives you an inside track when the business is actually put out to bid. A few years ago I witnessed one service provider whose listening meeting was so successful that the prospective client asked the service provider to write the first draft of the request for proposal. Not surprisingly, the provider ended up getting the business.
But sometimes the listening meeting isn’t this successful, and your prospective client remains unrealistic about what they can achieve with the desired budget. In this scenario, your budget negotiations should include packages: “For the budget you have in mind, here is what we can deliver; but for this [higher] budget, which we believe to be more realistic, we can deliver the following additional components that we believe you will value.” Sometimes three or even four alternative packages are warranted.
Proposing alternative packages does a few things. First, you get your foot in the door with a package that meets their desired price point. This reduces the odds that you will flat-out lose the business to a low-cost competitor. Second, offering multiple packages explicitly identifies the cost/value tradeoff. Sometimes clients will understand what they are sacrificing with an aggressive budget only when the tradeoff is made clear to them. Third, offering multiple packages demonstrates that you are responsive to their cost concerns.
One thing you should not do to demonstrate that their budget is unrealistic is put your cost structure on the table. A few years ago this kind of “cost-plus” pricing was thought to create transparency and partnership between advertising agencies and their clients. However, clients then felt entitled to nitpick about each line item and allocation, since they were, in effect, paying for it. Cost-plus pricing quickly fell into disfavor by creating more problems than it solved.
If all else fails, ask your client for a “last look” at a competitor’s proposal before they award the business elsewhere. Often clients will be attracted to a low-cost provider while overlooking the old maxim “You get what you pay for.” Your request should be unobjectionable to the client, as you are only seeking to help educate them about what they are buying and how it matches up to their interests and expectations.
How have you dealt with budget negotiations that seemed, at first, to be unrealistic?