The Elephant in the Room: Your Budget
When I bought my first real car in 2007 (a Honda Civic I lovingly named “Simon”), I remember stepping two feet into the dealership and saying, “hey there. I’m just looking around for a new car.” The salesman took one look at me and said, “sounds great! What’s your budget?”
Now, I had fully expected this question from him, and I had expected that it would be one of the first – if not the first – questions he’d ask because he needed to know whether I was in the market for a 1980 used Civic, or a pre-order-only, “Special Edition” Honda Odyssey EX-L. By having that information so quickly, the salesman didn’t waste my time – or his own! – showing me cars I couldn’t afford. Two hours later, I drove “Simon” out of the Honda lot, into the sunset, and both my pocketbook and I lived “Happily ever after.” [Fast-forward nine years, and yes, I now have a minivan.]
Common Budget Scenarios
Mineral water or tap?
Basic or Platinum Ultra car wash?
Golden-leafed wedding chairs or lovely library brown?
Payless tennies or Christian Louboutin sneakers?
With every transaction we make, the budget question is inherently there. It has to be. Budgets help us understand exactly what we can spend, and they give vendors a clear sense of exactly what they can sell. By not having this information readily available, both parties are subjected to misaligned expectations, a lot of painful back-and-forth, and at worst, a soured relationship before a real relationship can even blossom.
Budget discussions are notoriously the elephant in the room: no vendor likes to ask, and few prospective customers like to share. Our two “Common Budget Scenarios” below attempt to get to the bottom of misconceptions that create this problem in the first place. We present a few seasoned tips to prospective clients who may want to share their budgets but who are concerned that doing so may forfeit a sense of control within the RFP process. We also offer guidance on how prospective clients can issue an RFP if their budgets are not yet identified as well as how to navigate the proposal process while still setting proper expectations with vendors. As with any relationship, open communication is key.
Scenario #1: I’m concerned that if I share my budget, the vendor will hit that price even if they can reasonably provide their services for less.
There is always a risk that a company will inflate its pricing, but trustworthy vendors with a desire to build long-term relationships will not. One of the biggest reasons vendors ask a prospective client for budget guidance is so that they can properly determine what services they can provide for that particular budget range. In our experience, with a clearer understanding of your budget, we’re able to give you a reality check on whether your requirements can realistically be tackled within your preferred budget range.
Often, we see RFPs with “must haves” and “nice-to-haves,” and by understanding the budget bracket you’d like to fall within, we can give an honest assessment of how far we can take your particular project. And if your budget appears to be misaligned with your requirements, there are other options to tackle a project, such as using lean start-up to learn as much as we can, as efficiently as possible. We often couple this with an agile project approach, which means we’ll cap a budget (e.g., $20,000 | $50,000, or whatever your comfort level), and use those hours to tackle your highest priority items first, conserving remaining budget to address lower-priority requirements.
Scenario #2: I honestly don’t know what our budget is!
We commonly work with prospective clients who are genuinely unsure of their project budget. This typically happens when a group is soliciting proposals to help them earmark funds for a future project.
One approach is to be transparent about whether funds have been allocated for your project yet, and if not, when your organization expects them to be (even if an educated guess). Furthermore, while you might not have been given a specific number by your leadership, you might be able to gather information about a “cap” that you cannot exceed, or better yet a bracket range (e.g., between $100,000 – $200,000) that your organization is thinking about.
The only time it makes sense to not share budget information is when your organization genuinely does not know general market costs for services. But even then, the RFP is not the right way to solicit that information. As part of your market research, you can and should use vendors to help you by sharing high-level solutions and reference pricing that will enable you to set expectations with your internal leadership. It’s at that point that you will determine your organization’s budget for the project, and be able to solicit bids from trusted vendors.
And once again, open communication is the foundation to any strong relationship. We hope that this post has debunked some of the most common misconceptions that make budget conversations so awkward in the first place.