This is a crazy one: Don’t buy into your client’s belief about their budget.
Here’s the deal: Clients have a specific preconceived notion about what their budget is. Sometimes that budget is based in reality, and sometimes it’s not. More often than not, it’s not based in reality.
What happens when clients come to you with this preconceived notion of what their budget is? Let’s say their budget is this $2 million. But the reality is, it’s actually going to take $4 million to get that project done.
So now, you have this tug of war where they’re trying to say, “Oh, we don’t have the budget for this.” Not only do they think that they can get it done for less, but they also believe they don’t have the money to come up with this.
But let me ask you a question: How many times have you gone into a project where the client said, “All we have (as budget) is this?” And then they ended up changing things, and by the time the project is finished, they’d end up spending a lot more than they thought they would. How many times does that happen?
Here’s a little anecdotal example where we can see that a client’s budget is actually much beyond what they actually say that willing to pay. When my wife and I bought our last house — which is actually the one we’re living in right now with our kids — our budget was about 50% less than what we ended up spending for this house. And the reason is, we walked into this house and we instantly just fell in love with it.
Guess what? All we needed was to have these emotional hot buttons pressed in terms of seeing the house, the landscaping, imagining in our kids having swim parties, entertaining friends, and boom — suddenly we’re saying, “I don’t care what it’s going to take. I’m going to empty out my wallet. I’m going to turn my shoes upside down and look between the couch cushions and our budget went up.”
So here’s the deal: Clients will always come to you and tell you their budget is much less than they’re actually willing to pay, but it’s your job as a persuader, someone of influence, and someone of expertise to be able to open their eyes and help them see that not only is their budget higher, but they’ll actually be happy to pay a much higher budget.
There are a few psychological techniques you can use here.
Anchoring and Adjustment
One of them is called anchoring and adjustment. I want to tell you about a study that two economic researchers did. They did this experiment where they had participants spin a wheel that landed on either the number 10 or the number 65 right.
After they did that, they then had them do a task completely unrelated to spinning the wheel, which in this case was guessing the number of African countries in the United Nations.
Now here’s what’s interesting: Even though these numbers 65 and 10 are completely unrelated to the question about the African countries, they influenced the participants’ final guesses. Isn’t that crazy?
The people who spun 65? They actually guessed a higher number of countries. People that had the number 10 — they guessed a lower number of of countries.
This is anchoring and adjustment. What’s happening here is, the original number they are exposed to is the anchor. And then ultimately when people are faced with some decision about a number, even though they’re unrelated, if it happens in the same conversation at the same sequence, they then adjust down or up from the number that’s been placed as the anchor.
Let me give you an example. Doctor Robert Cialdini explains how anchoring can make a number seem smaller than it actually is. And this is where it enters into your negotiations and your proposals. So: He talks about a contractor who meets with a client to present a proposed budget, and the contractor opens with a joke about having a $1 million budget.
By doing this, the contractor is then anchoring his listener to that number. So when he finally presents his actual budget, which is far below $1 million, let’s say it’s 750 k or 500 k, this number seems reasonable by comparison.
Now, while throwing out a large number early in the conversation doesn’t make your proposal a sure win, it definitely cuts through the thick air around pricing. Used with other psychological strategies, it gives your client the chance to feel that they’re getting a spectacular value.
Another way to use anchoring to your benefit is, you can discuss the overall cost of similar projects. Discuss your fees second.
So: Number one, focus the conversation around project costs, not fees. And this is where graphics can be very, very useful.
Present a pie chart showing 100% of project cost. And then you could break this up into how much each component is going to cost. So you could say, here’s the contractor’s overhead and profit. Here’s the entire design team and their fees right here, these are the actual construction costs to build it. You have your entitlement fees, labor, cost of materials. You get the picture. If you want to make this even even more shocking for your clients, you could include the operating costs of the building over the first 15 years or the first 10 years.
So you have the complete project cost, right? And a small, small fraction of the entire operating expense of this project over the lifetime is your fee.
However — and this is where the conversation gets interesting — you can also explain how the design actually influences how much the rest of this stuff costs. So the most important money you’re spending or not spending is actually these few dollars right here, so you’ve gotta be very careful how you spend these dollars.
Be First to The Table
Another thing you should do is be the first to the table. It’s better to be the higher proposal first, than the higher proposal last. Because what happens there is, being the first to the table allows you to educate the client on the value of what your firm offers and why your fee is the best logical choice for the proposal.
If you do come in first, what I would also recommend you do is you get your client to agree that they will have a conversation with you about all the proposals before they make a decision. This way, if another firm undercuts your fee, you have the opportunity to explore with the client what the other proposal maybe leaving out.
All this is, is a matter of painting the picture for our clients, based on what they really care about. Doing that well, that science of persuasion, that psychology, is where our architects need to become better. We need to be better communicators and have a better understanding of what our clients really want.
Featured image: BIG Office Dumbo, New York. By Mark Touhey
This post is an excerpt of a webinar and podcast by Enoch Sears, hosted by Fohlio Inc. You can watch the complete webinar with visual aids here, or listen to the complete podcast here:
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