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by • August 28, 2012 • Pitching & sellingComments Off91

How to ask for money

Decide what your “not worth the effort” walkaway number is.

Think about how much money you’d be excited about.

Ask for that without worrying about leaving money on the table.

Walk away if their counteroffer is below your walkaway number.

Re-calibrate your walkaway number & repeat.

A couple notes

This strategy has served me fine, but it’s not optimal in the mathematical sense, since you are usually leaving money on the table. The goal is to find an easy and defensible “good enough” strategy for those of us who tend to get outwitted in big negotiations.

The easiest way to make more money is to increase your walkaway number. The best way I’ve found to do that is to find anchor customers at a certain price point who are so thrilled that they will always buy all the service you can give them. Then you can safely double your price and look for an anchor client at that new price point.

I spent a year freelancing after my second tanked company. During that time, I increased my rate from $60 an hour to $600 an hour. I made about the same amount of money per month, but at the beginning I worked 20ish [billable] hours a week whereas at the end I worked far fewer.

Every time you double your price, you change your customer segment.

This pricing strategy applies best to new freelancers & agencies. It also applies to very early stage enterprise sales where you’re still trying to get a feel of your customer’s price sensitivity. In the enterprise case, you have less ability to shift segments (since doing so usually involves overhauling the product). But on the upside, they’ll often tell you exactly what their budget is and how much of it you can have.

Sometimes your walkaway number is 0 (in that you’ll do it for free). My experience with free is that it’s fine if you’re getting the value from the experience itself, but a bad idea if you’re counting on them to give you value later. So by that heuristic, doing something you’ll enjoy for free is fine, and so is doing something you’ll learn a load from, and so is doing something to collect performance data. But doing something for a testimonial or introduction or goodwill is a bad idea, at least in my experience.

Having a clear walkaway number will save you a ton of time if you’re working on a team. If you don’t, you have to schedule a meeting with your partners every time an offer hits. Once you know your baseline numbers, you can immediately reply to an email without even thinking about it. It will save you a ton of grief, and people respond well to quick responses.

I never negotiate unless I’m willing to walk away. Imagine you’re in a market, and you ask how much a vase is, and the guy says it’s 50, and you say, I’ll give you 10 for it. And then he says, no, seriously, it’s 50, and you say okay and give him 50. You come out of that seeming really weak & petty, which is a bad place to be in during an ongoing working relationship. The same principle applies to asking for money. Ask for what you need, and walk away if you don’t get it. If you’re willing to accept 2000, but ask for 5000, and are terrified you’re going to lose the sale and get 0, then the whole experiences goes sour. Once a number is in your happy range, just say yes. You make more money over time by increasing your happy range, not by trying to get lucky on a particular deal.

Anyway, that’s how I ask for money.

 

PS. Are you in London? I’m running a 40 quid, full-day workshop on the foundations of lean startup strategy with Sal Virani. It’s this Saturday, September 1, at Central Working Bloomsbury, and you should come. It’s cheap because Capital Enterprise & Open Innovation are kindly picking up the bulk of the tab. Ping me if have any questions!

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