By Michael Killen from Sell your service
Who is this post for?
If you’ve ever had a customer who has a lousy budget, or there’s some smart ass who asks you to break down exactly what they need to spend, you need to read this post.
I had an enquiry from a lady who wanted to generate £250 000 from their e-commerce website. Not totally out of the realms of possibility, it was for a fairly niche market. However what she told me blew my mind.
Here I am going to break down the cold hard facts of investment in marketing. WHY businesses need to spend a certain amount and HOW you can convince them that you’re the right person to do it.
I had a lady approach me, like most of my clients, through a referral. As usual I handed out my qualification worksheet and asked her to fill that in.
Instantly alarm bells should have gone off, when I noticed the budget was not filled in. However the referral was from a well paying customer, so I ignored it.
The revenue goal was £250 000. It was for a brand new website, selling a very specific product.
So we arranged a Skype call and I sat down with her and her business partner. Everything was going smoothly until –
“My budget is £250.”
What? I could not believe what I was hearing. I had to ask her again. “£250, that’s right”.
I was furious (internally I might add). Mostly at myself for wasting time on such a low value customer. I charge £120 per hour consultation and this was wasting half her budget already.
I asked her again, did she want to spend £250 and get a return of £250 000, within a space of 12 months?! That’s a 99900% ROI.
ROI = ( (Earnings) – Initial Invested Amount) / Initial Invested Amount) ) × 100
If I you spend £1 and got £99 990, you’ve either won the lottery, or you’re a LOT better at marketing than me.
This lady could not believe my question, it was like I was asking about her first sexual experience.
She was visibly offended. I remained super calm and she threw objections my way such as-
- My son can build a website for £250
- If you’re that good why can’t you do this?
- I’ll just go somewhere else then
We’ve all heard these objections right? So, let me break down a few key facts that YOU can use when anyone hammers you on price.
I’d also like to add that I carefully explained these facts to my ‘lead’. I tried to educate her as much as possible. Frankly I was offended that she’d think I was stupid enough to take the work on.
For a start, £250 isn’t even 10% of what my websites cost, blank. Yet alone a lead generation machine behind a website.
How much your customers HAVE to spend to get a return.
If a customer wants me to make them £250 000, I would INSIST on at least a £100 000 investment. That’s IF they already had a customer base. There, I said it. For the time scale most people look at, that’s the skinny.
Below is a table showing how much a business needs to spend, compared to their current revenue. It’s a really useful rule of thumb to use.
|Revenue||Maintenance (5%)||Growth (10%)|
|£100 000||£5000||£10 000|
|£250 000||£12 500||£25 000|
|£1 000 000||£50 000||£100 000|
|£5 000 000||£250 000||£500 000|
Above, this table outlines how much money a company needs to BEGIN thinking about to grow. Whatever their revenue is, they need to spend at least 10% to start growing.
So if you charge £3000 for your services, you need to find someone who has at least £50 000 in revenue. Unless your activity is ALL they need.
On the other hand, lets say they want to grow from £250 000 to £450 000. So a £200 000 revenue increase.
We need to work out how many current customers they have, how much their average spend is and how often they buy.
For example, off the top of my head, someone who sells wool and knitting supplies, probably spends between £25 and £50 every two months (I literally have no idea, these are just examples. If you have a more accurate figure, let me know).
So that means that a £200 000 revenue jump needs between 4000 and 8000 £25-£50 purchases in a year.
Even if that’s customers buying every single month, that’s at least 300 customers. Spending at least £50. Once a month.
Could you get 300 people to spend £50 a month for 12 months? Would it cost you more than £250 to set that up?
Breaking down what their budget is and what it gets.
Breaking down what their budget WILL get them or what they hope to get. I love this exercise. Particularly when people low ball me.
Recently I was approached by a business that had a £2500 budget and they wanted 500 CUSTOMERS. Not leads, fully paying customers.
Every one of the 500 customers was required to spend at least £120 a year, or £10 per month. That works out £60 000 revenue.
It was a new business and a new business model. So we needed to generate leads, capture leads, explain our value, sell to them and continue to work with them. 500 people. All for £2500. To generate £60 000.
What’s the ROI?
First of all, that would mean a 2300% ROI. Mental.
That would mean that I would have £5 to spend per customer. That’s £5 to find a perfect, qualified, customer that is looking for this solution.
Statistics and experience would show me that I’d need 100 leads before 1 would become a customer. A 1% conversion rate for this particular product would be pretty good. So I would need 5000 leads to get 500 customers. That means I could spend 5p per lead.
I want you to tell me if you can generate a lead for 5p. How much do you charge per hour? Divide that by 5p. That’s how any people in an hour you’d have to speak to and capture a lead. I charge £120 per hour for my business. That means I’d have to approach 2400 people and capture a lead from them. Within a hour. That’s 40 people a minute.
If you break down their budget like this, it becomes VERY obvious when people are low balling. Don’t let it happen.
My son/cousin/niece/cat can do it cheaper
I bet they can and I bet it’ll be awful. I could get a car for £350 but I bet that it doesn’t work.
If someone tries to bully you by saying someone can do it cheaper, let them. I wouldn’t ask my nephew to do my accounts.
If you won’t do it, your competition will.
Let them. You have to believe me when I say you’re not losing out here. I promise you’re not losing market share. You’re letting a customer that doesn’t understand your value, work with someone that doesn’t know what they’re doing.