When I was in the web business, there was a magic number I kept bumping into. That number was 500. No, it wasn’t the number of clients I had, or how much I charged per hour, or how many hours a week I worked. It was how much money most prospects thought a website should cost. So what do you do if your starting price is three, four, or maybe even five times that?

Is \$500 a lot of money? You can’t answer that outside the context of what you’re getting in return, can you? As a freelancer or business person trying to sell your services, you must put your price into its proper context. If you don’t, your prospects will.

Let me put it another way. When you quote someone a price, be it \$500 or \$5,000, he needs another number to compare that to. If you don’t provide one, he’ll come up with his own. Unfortunately, the number he uses will be something else he spends his hard-earned money on—like his mortgage or his car payment. When your prospect starts comparing your price to his other bills, you’ve probably already lost. In his mind, you’ve become just one more expense that’s going to take money out of his pocket.

The problem is, your prospect is focusing on loss—what he has to spend. You can circumvent that thinking process by providing a different number for him to think about … what he’s going to gain.

## HTML x CSS ÷ PHP = ROI

Return on investment, or ROI, is an equation that often doesn’t get introduced into the sales conversation. Yet, ROI is a just number derived from a simple mathematical formula. Let me use an actual example, and since I’m mathematically-challenged, I’ll keep it simple.

Suppose I’m considering a direct mail campaign for my web business. If my total cost for a stock image, plus printing and mailing 5,000 postcards is \$1,500, and my average job is \$900, then I need 1.66 jobs to break even:

\$1,500 ÷ \$900 = 1.66

Direct mail has a response rate of 1 – 3 percent. Let’s be conservative and use the lower number. That means, out of 5,000 postcards, l should get about 50 people to respond back. If I can close one out of every 10 people, that’s five jobs and a positive return on my investment. Again, simple third-grade math:

50 ÷ 10 = 5 x \$900 = \$4,500

I’d spend \$1,500 all day long if it meant I’d make \$4,500. You can also start out with how much revenue you want to bring in and do the math from the other direction. Once you use this formula with your prospects, all that’s left is his risk quotient: Are you willing to risk x to get y?

Mark Twain once said that there’s “lies, damn lies, and statistics.” Many of your prospects will feel the same when you start using numbers to make your case. “But it’s just theoretical!” I’ve heard that as often as I’ve heard, “That’s more money than my house payment!” But remind your prospect that he did the same thing when he went into business for himself. He looked at the market to determine how many customers or how much revenue he’d need, then deducted his overhead to see if he could earn enough money to make a living. He took a risk then. This is just one more risk in a series of risks he’s taken since starting his business. Is he willing to take it?

## The Final Equation

It makes no logical sense to compare a business expense to your house payment, but keep in mind that people buy based on emotions, then justify it with logic. So it stands to reason that people also refuse to buy based on emotion, doesn’t it? And so the final equation is: Emotions + Logic = More Sales. You need to provide your prospect with both the emotional reasons to buy and the logical reasons to justify it to themselves. ROI is a great way to provide that logical hook for them to hang their hat on once you’ve left the building.

Image credit

• http://pulse.yahoo.com/_6GG7CEFACSCBVP2LFIJ23KVSYQ Emma Pope

i cant believe this!! me and my sister just got two i-pads for \$42.77 each and a \$50 amazon card for \$9. the stores want to keep this a secret and they dont tell you.
go here, bit.ly/qJFHsO

• http://twitter.com/GaryJ Gary Jones

Please don’t string equations together like:

50 ÷ 10 = 5 x \$900 = \$4,500

as 50 divided by 10 does not equal 4,500.

What you mean is:
50 ÷ 10 = 5
5 x \$900 = \$4,500

• http://www.sitepoint.com/author/john-tabita/ John Tabita

I’m mathematically challenged. That’s why I’m a designer, not a programmer.

• Clare

How do you show the roi in an equation for the website price?

• http://www.sitepoint.com/author/john-tabita/ John Tabita

In my opinion, ROI is something you bring up before you even discuss price. You want to demonstrate that he has the potential to make more money than he’ll have to spend. If your dealing with a client who is selling something directly off his website, or generating leads, then use dollars and cents.

Let’s say my prospect is a therapist and, because I’ve asked the proper questions, I’ve discovered that she charges \$60/hour and her average patient returns for 4 sessions. That’s \$240. When I quote her \$1,500, I point out that the website begins to generate a positive ROI after the sixth patient. (I did speak to a therapist once and had this exact conversation.)

ROI is also something you’ll fall back on when you get price objections. Suppose I’m working with someone who sells HVAC equipment with an average sale of \$15,000. If he says my price is “too expensive,” I do my best Columbo impersonation and say, “I’m confused, Mr. Prospect… how is \$1,500 too expensive when a single sale will pay for your site 10 times over? Could you please explain that to me?”

Another way to ask that is: “Why is \$1,500 too much to spend when you have the potential to make \$15,000 or more?” This will flush out the real reason. Maybe price isn’t the real issue; perhaps he doubts that he’ll get enough sales. Maybe he’s unclear how SEM works and doesn’t see how he’ll generate enough traffic. But if you never introduce ROI into the discussion, the only option you have left is to scale back the project and lower the price.

• Anonymous

How do you get a prospective client to reveal his costs and profits so that you can calculate the ROI on his investment in a web site? If I can show a prospect that \$5,000 he spends with me results in \$50,000 in new annual sales, my pitch is easy. But unless he reveals some info or I’m able to make an educated guess, it’s hard for me to pitch on the concept of ROI.

• http://www.sitepoint.com/author/john-tabita/ John Tabita

You don’t need the client to reveal his profit margin, just his average sale. You ought to have a set of standard questions you ask during your initial consultation. This is the “needs analysis” or “fact finding” phase of the consultative process, and it’s the first thing you should do when you sit down with the client for a meeting. “What’s your average or typical sale?” is a critical question you must ask.

ROI isn’t a “concept” you have to “pitch.” It’s the result of a set numbers that your client provides, not something you make an educated guess about.

• Anonymous

Perhaps I’m working with clients that are more tight-lipped about their business, but most of them aren’t going to reveal proprietary information like “average sale” to me. But even if they did, how can I determine (so that I can then show the ROI) how much a new (or improved) web site can increase overall sales and/or the amount of the average sale?

• http://www.sitepoint.com/author/john-tabita/ John Tabita

Take a look at this article. You’ll find two examples of how you can have this type of conversation. The first is how not to do it. The second one is based on an actual conversation I had with the client.

Over the years, I’ve dealt with attorneys, real estate development companies, used car lots, landscaping companies, HVAC equipment manufacturers, and even a guy who sold his custom-made spices at a local Famer’s Market. I’ve yet to have one who’s been unwilling to “reveal” his average sale. If I already have an idea, I might lead with, “What’s an average roofing job, about \$5,000?” I’ve had clients correct me and say, “Oh no, it’s more than that,” and then give me the higher figure. I’ve never had one even question why I’m asking. I think they understand that, if I’m here to discuss how to increase revenue, then their average sale needs to be part of that discussion.

I find it quite easy to get all my questions answered. Just make sure a need analysis is the first part of your sales process. Of course, “how much is your average sale?” is not the first question out of my mouth. But once we start talking about marketing objectives and revenue increases, then “how much is your average sale?” become a very logical question to ask.

Hope that helps.

• http://www.furnished-spaces.com Furnished Office Space

What is this all about, i dont relly get it – Emotions + Logic = More Sales. You need to provide your prospect with both the emotional reasons to buy and the logical reasons to justify it to themselves. ROI is a great way to provide that logical hook for them to hang their hat on once you’ve left the building.

• Anonymous

Of course, just because someone charges 15,000 for an hvac system doesn’t mean that *any* of that is necessarily profit. (some probably is, but not nearly 15,000). If his profit is only \$100, it could take 15 sales to recoup the website expense.

His profit is probably more, and it may still be worth it to buy the website regardless, but it’s a valid point that you can’t speak ROI without knowing the markup, or at least profit per sale.

• http://johntabita.com/ John Tabita

You’re absolutely correct. However, doing an ROI analysis in a sales call is complex enough without adding an extra level of complexity by basing it on profit instead of revenue. Plus, some business owners may be reluctant to divulge how much they mark up their products.

If, after doing an ROI, the prospect brings up your objection, then he’s opened the door for me to ask what his profit is and recalculate the ROI. Incidentally, that’s only happened to me once.

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