Buyer Approval Limits and Perceived Risk Determine How to Best Sell
Everybody has a purchase approval limit. You do. I do. Every prospect does. Every deal you’ve ever done has. Below that approval limit, the buyer can make a decision without consulting anyone else and without defending their decision, making for a speedy sale. Above that limit, things get more complex and lengthy. You must adapt your marketing and sales tactics depending on customer approval limits and their concerns for risk.
The Purchase Limit
For business to consumer sales, personal limits may be set by spending habits (“I only pay $10 for that.”), available cash on hand, and agreed-upon limits set with a life partner. The amount can be set by the daily spending limit for a debit card and ATM withdrawal, one’s available credit balance, or a preapproved limit for large purchases such as a house, car, boat, or appliances.
For example, my wife and I make joint decisions on purchases above a certain limit. Even for routine budgeted expenses, we’ve agreed on those limits in advance so that we can control cash flows. I’m sure it’s the same for you.
Selling above one’s purchase level authority extends the sales cycle.
For business to business sales, personal approval limits may be set by department history, executive mandate, role, and budget constraints. This often varies by business size and economic situations — when times are tough, limits plummet.
Small business owners usually demand approval for all purchases. Midsize business managers may allow departmental purchase approval of several thousand dollars to tens of thousands of dollars. Large companies, counterintuitively, often have lower approval thresholds.
I worked with a Fortune 100 company whose CEO demanded to review every expenditure over $100k. Under the advice of our contacts, we just kept the project phases and invoices under that level.
Purchase limits can be contextual, differing for various purchase classes. For example, a routine purchase may have one limit and a one-time purchase may have a lower limit.
The Purchase Risk
A purchase can be considered risky when involving a new vendor, a new product or service, or when there’s a high failure cost. When selling a disruptive product, you’ll be perceived as risky, so this principle becomes important to your success in selling disruption.
Disruptive products feel risky to new buyers.
Perceived risk causes sales resistance and purchase delay as the buyer considers risk/reward ratios, risk mitigation strategies, and risk costs. You are at psychological odds with the buyer because you pit your feeling of confidence against their feeling of fear. Until you can help them through their fear, or you have a trusted relationship with them, their fear wins.
The whole power of brand is that it reduces perceived risk and fear because of prior satisfactory experience with the brand. If your customer trusts your brand — personal or corporate — perceived risk declines and the sales cycle accelerates. Tying a new, disruptive product to an existing brand decreases, but may not eliminate, perceived risk.
High Consideration Versus Low Consideration Purchase
Combining your customer’s approval limits and perceived purchase risk determines whether a purchase is high-consideration or low-consideration action. Purchases above their limit and/or high perceived risk makes the purchase a high consideration situation. Both high risk and above their approval limit indicates a very high consideration purchase and an extremely difficult sale situation. Below their limit and low perceived risk makes it a low consideration purchase.
High consideration purchases require extensive analysis, consultation, and multiple decision maker involvement. Low consideration sales are ones that can be made fast, in seconds to a few days. High consideration sales can take months or years, a painful situation for a sales rep paid on monthly commission.
Stop Thinking Sales Cycle, Start Thinking Consideration Cycle
Historically, we’ve discussed deal timing in terms of sales cycle with high consideration deals being a long cycle. The more levels of an organization that must be included, the longer the cycle. If the board of directors gets involved, it may take several 90-day board meeting cycles to get approval.
I recommend that you stop talking about sales cycle time because how long it takes to close a deal is actually a function of how well you guide your customer through their consideration cycle. The length of the sale gets set by how well you manage their need for purchase approval and risk mitigation.
Your sales cycle is based on how rapidly can you move your customer from cautious to confident.
Instead of thinking it in terms of time, think of it in terms of what’s needed to move the decision making team to confidence, the threshold of every sale. Now you can choose strategies and deploy tactics to get to confidence, psychologically and fiscally, as quickly as possible. Let’s consider some tactics to speed the deal.
Scope Out Their Limit
Find out what they can approve with smart questions:
“What price have you approved for something like this in the past?”
“Who has to approve of this purchase before you can decide?”
“At what price point do you need to get purchase authority approval?”
“Do you need to break this into multiple invoices/payments to fit this into your signature authority?”
“What’s your signature limit?”
Who Approves Over-Limit Purchases?
Discover who’s in the approval chain. This information becomes valuable for future deals and expanding opportunities.
“At what price point do you need to get someone else involved? Who is that?”
“Who has approved a purchase like this before? Are they available to review this?”
“What is their purchase approval level?”
“To whom do they need to justify their approval decision?”
“What criteria do they use to make the approval?”
“Under what circumstances can they approve more budget?”
Increase the Limit
You can increase approval limits by helping them find ways to pay for the purchase. Provide financing, consider payment terms, offer trade in allowances to expand their limit. Use coupons, rebates, referral bonuses, and other ways for the customer to earn as they buy, psychologically increasing their budget limit.
Scope Out Their Concerns for Risk
Use smart questions to understand their fears. Old school sales trainer’s heads would explode if they knew I was telling you to explore why the customer might not want to buy. But then, they didn’t understand high-consideration sales situations.
“What concerns do you have about this purchase?”
“What would cause you to hold off on this?”
“What risks do you consider as you make your decision?”
“On a scale of one to ten, how confident are you about this? What do you need to move that up a point?”
“If you need for me to guarantee any one thing about this, what would it be?” (You don’t have to guarantee it, but the question reveals their concern that must be addressed for the deal to proceed.)
“What have others warned you about as you consider this purchase? What was their experience that triggered the warning?”
“Who do you have to assure about this decision? What do they consider when they are making a judgment about it?”
“To whom do you need to defend your decision? What criteria do they use to decide?”
“What risks do they consider as they make their decision?”
“What’s the worst thing that could happen if you decided to buy and something went wrong? What if we could guarantee that didn’t happen?”
“What would it cost if you didn’t make a decision?”
“What would it be worth to decide to move forward?”
Help them eliminate or mitigate risk so they can decide to buy. You can use satisfaction guarantees, product warranties, and risk reversal strategies (“If you’re not happy, I’ll refund your money and you keep what we shipped to you.”). You can offer insurance and performance guarantees.
Think of every reason why a customer would feel risk and look for a way to make the risk go away.
Eliminate Buyer’s Remorse
An important part of the disruptive sales process is allowing the customer to examine and dismiss their perceived risk elements. Don’t try to pitch them through their fears (an old school method), but instead invite them to bring it up and then help them lay it to rest.
This is another application of “Customer’s don’t argue with their own data.” When they decide it’s not a risk, then it’s never going to be a risk in the future. This process eliminates buyer’s remorse, where after the sale they feel risk or fear.
In today’s review driven, social media world, buyer’s remorse can quickly ruin your brand. Avoiding buyer’s remorse is worth the time and effort, ensuring you have positive word-of-mouth instead of having to clean up an unhappy customer experience.
The biggest mistake in sales today is using low consideration sales methods for high consideration deals.
Use the Right Sales Strategy
Now that you understand how to determine if your customer will view this deal as high or low consideration, you can now select the right method to engage with them. More on that soon!
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