I have been an integrator for over 20 years and have become an industry expert on sticker shock. I have “sticker-shocked” thousands of clients on a weekly, if not daily, basis. It's not fun. I recommend avoiding.
Here's the common problem with the custom electronics industry: When a person walks into a Bentley automobile showroom, he has a good idea what a Bentley costs. But a potential custom integration client has very little knowledge about what a complete home technology system costs.
My experience is the number in their head is typically one-third of what the project will actually cost. Do the math on your own the next time a client lets you know what they were thinking the cost should be… you will marvel at how accurate that formula is.
Sticker shock is a real epidemic in our industry and I hope to help you avoid some of the pain and lost deals that I have suffered through.
The signs of sticker shock vary, but are obvious if you pay attention. See if one or more of the following scenarios seems familiar to you, and if so, read on to discover what you can do to resolve or avoid the situation.
3 Client Reactions to ‘Sticker Shock’
The Awkwardly Long Pause – You are meeting with the client and have put together their dream list. You carefully engineered a solution and are really excited that you value-engineered it to a great final number. You slide the client a copy of the proposal across the table. They immediately flip to the back page… and stare… for a long time… and saying nothing. This is the awkwardly loooong pause.
They usually then look up at you like you just impregnated their teenage daughter, and then look back down at the number… then look back up at you again. This time the customer’s look indicates that nothing you say from this point on matters… you are sunk.
The Ghost – This is the client who forces you to email your quote. Despite all of your attempts to get an in-person meeting to review and explain the quote, you have no luck. You succumb to the pressure to send it, and you eagerly wait for a response… nothing.
You send an email, “Hey, did you get a chance to review the quote?” Crickets… for days… weeks… nothing. Your bid full of really nice equipment was sunk by the guy who proposed an amazingly cheap system chock full of the very best in-ceiling speakers made in Uzbekistan. The client firmly believes that you are a con artist and your knowledge of Uzbeki architectural speakers is piss-poor.
The ‘Give Me the Best’ – Finally you have a client that understands quality. He makes sure you understand he wants the best. He doesn't want you to cheap out. He likes nice stuff. You sure you got that? Well, you put together an amazing quote filled with high-performance audio, video, and control and meet with him. His response?
“Well, maybe I don't really need 'the best,’ what can you do for one-quarter of the price?” After you were unable to contain your laughter for fear of peeing your pants, you realize that you just offended Mr. Faux Bigshot and your engineer will be putting in his two-week notice tomorrow because you made him work Sunday to build the “coolest system of all-time” for the guy who can't afford “the-slightly-less-than-mediocre system of all-time”.
7 Tips to Avoid Sticker Shock
The big issues with sticker shock are lost deals, lost trust, and wasted time engineering system proposals. So how can you avoid the dreaded deal-killer of sticker shock?
1. Know Your Position – Find out who is bidding on the project and if the client has seen any other quotes yet. Typically he will be more forthcoming about a target budget after receiving a few quotes that made his sphincter tighten.
If you are the first person to give the client a quote, you may have already lost. The first integrator to tell a client he needs to spend $200,000 to get what they want is deemed to be a “complete-and-utter jackass” by the client.
The second integrator to deliver a $200,000 quote is “another con artist that wants to rip me off.”
The third integrator that delivers the $200K quote gets this reaction, “Oh well, I guess this is a just going to cost me $200,000. Can you start next week?”
Sometimes procrastination pays off.
2. Put Out 'Feeler Bets' – In poker there is a strategy called “feeler bets.” This strategy is sending a small bet into the pot to get a reaction from the other players. How they bet or fold in reaction to your small bet, gives you information about what is in their hand.
In a meeting, you really need to make best efforts to send out feeler bets. When they ask about a projector, you need to throw out cost ranges of what you sell. “A top-tier projector starts at $60,000 and goes up from there.”
You will have a good idea of what kind of client you are dealing with by their reaction. If they start filibustering like Foghorn Leghorn, you’ve hit a nerve, and need to start talking about lower-cost options. You can do this same exercise with the cost for flat panel TVs, loudspeakers, etc. When you throw out small numbers you will quickly get a sense of their budget and quality expectations.
EJ Fuelner, managing director of integration company AHT Global in Philadelphia, offers this strategy, “Mr. Customer, based on our extensive experience providing reliable and simple to operate systems of the exact type we have discussed today, I think you are looking at spending about $300,000 to get all the bells and whistles you liked. Are you comfortable with that budget?”
Then shut up. The first person to talk loses the negotiation. Let him or her reply to you with their gut response because I guarantee it's going to cost more than they expected. If you do that the end of the first meeting and they reply in the positive then you are golden!
3. Break Down Budget into Small Projects – Your giant system number is made up of a bunch of smaller systems. Discuss these smaller budgets with clients at your initial meeting. Your CCTV systems might range from $5,000 to $50,000. Get a commitment on a number in that spectrum and move on to network, home theater, lighting control. etc.
When you tally up the small budgets to which your client has agreed, review the small numbers one more time before presenting the total (larger) number. I find that clients shake their heads with approval at all the small numbers and then when you give them the subtotal they appear as though their colonoscopy has just commenced.
At that point you can go back to the smaller budgets to nip and tuck them off the ledge. By the end of the meeting you will have a realistic target budget. No sense in burning engineering hours on a proposal that is not even in the ballpark.
4. Make the Offer… and Explain Options – Clients don't want to only hear about the most expensive option, but they always want to know what the best is just to have a reference point. In the selling process, you should not automatically exclude high-performance gear to prevent sticker shock.
Kim Michels of Home Technology Association (HTA) Certified-firm Electronic Environments in New York City is a master at selling high-performance products. His advice is, “You have to recommend high performance and be ready to offer other options. Sticker shock comes from a lack of explanation and communication and passion. Passion can sell high-ticket items, but clients always need to feel they have options.”
5. Sell Design First! – Introducing price too early confuses clients and takes their focus away from providing the information you need to design a great system. Sell your clients on the concept of design first. It will be much easier for a client to commit to a small design fee as opposed to a giant contract number. Once they have committed to your firm for design, you can do the work to educate your clients on all the options available to them and how their choices impact budget.
Budget will be established more organically once you are part of the design team. You will see the client's defenses come down when they see you are earnestly interested in designing something great for them. You will not lose clients to sticker shock since the process focuses on design over dollars.
6. Be Upfront about Your Market Position – Most integrators do not sell on price alone, but sell on luxury, performance, convenience, and safety. If you are not the cheapest company in town, make sure you talk about why. Most clients are disarmed when you warn them that you will be the most expensive bid they get.
Go into the reasons why. This might establish you as the most desirable contender. If your quote happens to come in close or below the other competitors your potential client will be thrilled they are getting the top firm for the second banana's price. Under-promise and over-deliver!
7. Prep Customers to See Your Price Before Seeing Your Bid – One of the most effective techniques for removing sticker shock involves taking away the surprise element (that is, the “shock”) from your pricing. You can do this with ballpark figures that prepare the client, or with an explanation of why the project costs what it does.
At my company, DSI Luxury Technology in Los Angeles, we have had great success using the HTA Home Technology Budget calculator. It takes away sticker shock by empowering your prospects to see for themselves what they can expect their project to cost.
If they use the calculator, by the time you show them a bid, they are prepared to see these kinds of numbers. (Full disclosure: I was part of the team that developed the Home Technology Budget Calculator, so I am very biased. But that also means I know what this technology can accomplish.)
The calculator asks the client a series of multiple-choice questions about their project and spits out an incredibly useful budget range by system. It includes all the major home technology systems: home theater, control systems, shading, networking, CCTV, whole home audio, television systems, etc.
The fact that an independent third party is educating the consumer on what things cost instantly gives the numbers validity. No longer are you the bearer of bad news.
Bryan Mills of HTA-Certified Mills Custom AV in Chicago says, “The HTA Budget Calculator has been tremendously helpful, as we are no longer the company presenting what can be a surprisingly large budget; instead, we are the experts helping them select the technology they want while reaching a desired cost target.
“We’ve also noticed that those clients generally bring up a larger number of systems – things like lighting, motorized shades, and enterprise-grade data networks. These discussions are much more collaborative, rather than having clients shut down what they believe is an “add-on” sale. The other benefit is customers no longer need the standard “three bidders” to feel educated on budgets. They now have a reasonable budget range and see value in partnering with a trusted advisor to design their ideal system.”
Are you ready to say goodbye to sticker shock? I know it is really hard to create a new routine in your sales process but I urge you to consider adding some or all of the above techniques into your process. I promise the results will save you time, money, and heartburn. Your engineers will love you, your clients will trust you, and your business will be more profitable.
Eric Thies is principal at DSI Luxury Technology in Los Angeles.