How To Talk About Budget
Updated: Oct 12, 2022
“Do you have a budget?”
“What’s your budget?”
“How much are you willing to spend?"
"How much can you afford?”
"Do you have the authority to make this purchase?”
“Does this fall within your budget?”
Sound familiar? Those are all real quotations from the field. If you feel a little awkward reading those questions, that’s because they’re awkward questions. They’re all thinly guised versions of “Do you have the money to be worth talking to?” To be fair, that is something salespeople need to know in order to be efficient, but somewhere along the way, asking blunt, nosy questions about budget became a kind of low-grade sales orthodoxy. There is a better way.
Budgets are set for things clients can anticipate, and already understand
There’s a problem inherent in the concept of a budget. Many of the important expenditures throughout the business year are items for which no specific budget was (or could have been) specifically set. This is especially true in professional services, where there's a very good chance that your client doesn't have a set budget for this year’s surprise lawsuit, or the forensic accounting work they need for a one-off transaction, and so on. This doesn't mean that they have no money, or that they're not willing to spend, it just means they haven't pre-allocated a set dollar value for your services. That makes sense when you consider that budgets are for things a client can a) anticipate and b) understand.
Things that can be anticipated
Budget is directed toward things that can be anticipated*. Think about how many businesses had no budget for video conference tools at the beginning of 2020, but who quickly had to shop for these tools. It became a Zoom salesperson’s dream scenario. But even in those fortuitous conditions, you would do yourself no favors by asking “do you have a budget allocated for this?” Your sales role is to understand how they might create a budget for your solution. This kind of blunt question reveals a lack of subtlety in your understanding about how or why your clients buy from you, and you come across as simple.
This lack of pre-determined budget is not bad news for you as a salesperson; on the contrary – it means you and your prospective client are in a great position to co-create the value proposition of the service/product. To set the tone for that co-creation work, you’ll have to abstain from asking about budget which the client could not have realistically anticipated. As a corollary, if a client does seem to have a well-defined budget for a specific solution, you’ll want to understand whether you’re being seriously considered or you’re just providing the “extra quote.” Here, you come across as naïve.
*A very prudent budgeter may set out a reserve pool of cash for “unforeseen circumstances,” but they certainly wouldn't spell out what each of those unforeseen circumstances would be.
Things that are understood
Budget is directed toward things that are already understood. Last year’s transportation bills, laptop purchases, and advertising costs would be simple examples of line items that are well understood. However, many solutions today – especially in B2B environments – are extremely complex and require a great deal of pre-sales education and planning before the sales can be closed. In situations like this, the “budget” is being formed on the spot - concurrently with the development of their understanding of the service or product, so trying to pre-qualify your clients with budget-related questions makes you appear unwilling to do the real work needed to make the client comfortable with your solution. You’ll come across as lazy.
If your product or service is not anticipated or understood by your prospective client, asking simplistically about budget makes you look either simple, naïve or lazy, so don’t do it.
Avoid commoditizing yourself
Evaluate, for a moment, the kind of product or service your organization sells. Draw a spectrum line where one end of the spectrum marks commodities like industrial soybeans and oil. The products here are like-for-like from seller to seller and the price can be set with great precision. The seller and buyer have very little to discuss regarding price and product. On the other end of the spectrum are certain professional services. These services are virtually impossible to compare like-for-like between competitors, and the price is entirely customized – there are no spot prices or rate-cards. The buyer and seller must discuss price and service expectations at length to come to an agreement. Having drawn that line, now mark where your product/service sits.
Most sales conversations fall between the extreme ends of this continuum, and require a moderate amount of discussion to succeed. It is important that you know where your product/service sits on this continuum because asking “what’s your budget?” pulls the conversation far to the soybean end of the spectrum. This is great if that’s where you ought to be – but if not, it’s a big problem.
Once you ask about budgets, you prematurely remove yourself from a discovery process and end up rushed into a negotiation process. At this point, you will struggle to reclaim the collaborative tenor of a discovery process.
So asking about budget has four risks associated with it:
It’s a question many clients can’t answer because they haven’t anticipated the need for your product/service
It’s a question many clients can’t answer because they don’t yet understand your product/service
It commoditizes the service/product
It comes across as presumptuous or crass, and harms the rapport you need to complete the discovery process
But it is still critical to understand what your prospective client is capable and willing to spend – you can’t just avoid the topic. After all, understanding whether a client has the money for your goods is essential to make good use of both parties’ time and to set the direction for the ongoing conversation.
“Discovery questions” are a better approach
Instead of the gate-crashing “what’s your budget?” approach, I advocate that you use a line of “discovery questions” to learn the spending limits, preferences, and values of a prospective client. Discovery is a semi-technical sales discipline which we teach and train to clients in professional services. It has several dimensions to it, only one of which pertains to how prospective clients think about expenditures. Here we will only deal with what we call “Spend” or “Spendability.” This is very different than budget; it focuses on two key questions a) the capability and b) the willingness to spend money on products or services.
Discovery: A conversational and collaborative process of gathering information and establishing a relationship between two parties.
Look for a capability to spend...
The capability to spend centers on two questions:
Do they have the financial resources?
Do they have the organisational capability required to draw upon the financial resources?
To illustrate, imagine a start-up with $14k and no line of credit. They do not have the financial resources to buy a $350K strategy consulting engagement. Simple case. Now suppose the same start-up a year later with $750k in the bank, however our consulting engagement would mean drawing nearly half of it down on one project would be out of the question. They have the resources, but not the organisational capability. If the same start-up 5 years later had $7.5M in the bank, including $3M of unallocated money, we can answer both questions with “yes.”
...and a willingness to spend
The willingness to spend is a complex matter because it involves individual and organisational psychology, but it boils down to whether someone in the organisation has the intention to shoulder the responsibilities that will go along with making an expenditure. In many cases, willingness entails internal case-making, weathering disagreements, and putting reputation on the line for the ROI or other outcomes connected to that expenditure. This is a very important feature of Spendability since all the budget and authority in the world won’t help if a client doesn’t have the will to see a deal through.
So, what questions should you ask?
You can discover a lot about a client’s capability and willingness by asking a line of questions. The style of questions should be open-ended, i.e. not a train of easily answered “yes” or “no” questions. They include questions like “How does X work?” “Why would you prefer, A or B?” “How do you think about Y?” all in the style of a curious interviewer.
Here are five questions you can ask to determine whether people have the capability and the willingness to spend:
“What is the process for this kind of expenditure, and who is involved?”
This question implicitly signals your knowledge that a budget may not exist already, and allows your prospective client to share openly about the existence (or absence) of resources, and ideate around ways to get the resources needed. Imagine three responses: “we’ll have to cancel three other subscriptions to make room for this.” Versus “I’ll talk to marketing, and they will pay for it.” Versus “I honestly have no clue.” All of these are very informative, and give you direction for the conversation. They are far superior to a “yes/no” response about having a budget.
“How does this compare with your other expenditures?”
This question does two jobs for you – it helps you understand the category your client perceives your product or service to belong to, and it helps you understand the scale of the fees in relation to the other items they spend money on. I used to sell primary research services and some clients would compare our fees to headcount costs while others would compare to the value of investment transactions, and yet others would compare with IT subscriptions. Knowing that for each client illustrated both their capability and willingness to spend.
"How do you measure the value of our services?”
This is a great discovery question. It helps uncover potential problems in the way your service is valued (“We expect 25% annual returns with virtually no risk” is a warning flag), or opportunities in the way it is valued (“If you can make this problem go away it’s worth my entire payroll!”). More than likely, it will give you a realistic tool to use to estimate value and set a shared rubric for service and fees going forward. (“So long as it costs less to have your support here each month than it costs to not have it, we’re happy.”)
I suggest you apply variations of this question to suit different environments, “How do you plan to measure the value…,” “What key numbers will you look at to measure…,” “Who will measure…and how?”
"Will the money for this come from a specific place in the organisation?”
This question explores willingness mainly. If the answer to this question is that it comes from a hard-to-access pool of funding, you know that success will requires that the buyer have a high level of willingness. If the budget comes from a large pool of unspent funds with only a month to be drawn down then you will be in better shape. I also like this question because it can help you understand some of the organisational capability to spend. I recently had a client tell me that they “…could pay for technology, but not for training, and if I could frame the proposition accordingly, we would have a deal.”
“What questions do you expect to be asked about this expenditure internally?”
Finally, here is a question that will help uncover additional questions worth exploring! As a champion of this expenditure, your prospective client will need to address internal audiences such as CFOs, seniors, juniors, HR, maybe even other organizations, and knowing which questions they expect to be asked from those counter-parties will help you navigate together. Discussing this question empowers them to anticipate, and steer through, the obstacles they will face. It empowers you to participate in shaping the Spendability of the client.
I will close this post with a challenge: in your next five meetings, as you learn more about your prospective clients, and try to figure out their capability and willingness to spend, make it a rule to never say the word “budget.” It will be uncomfortable at first, but will force you to navigate a course of discovery questions with your prospective client, and will lead to a much richer understanding of what’s possible between your parties.