Using Pencil Selling to Close More Digital Sign Deals
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Sign China 2015 - September 16-19, 2015 in Shanghai, China


Using Pencil Selling to Close More Digital Sign Deals

Some prefer to call it a return on investment (R.O.I.) analysis. I still call it pencil selling. It's the art of taking a prospect through the mathematical process of understanding how the cost of what they're buying is justified by its return.

By Randy Rogers

"Everybody wants an LED until they see how much they cost."

SGIA Expo 2014 - Las Vegas, NV - October 22-24, 2014

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  • When it comes to selling digital signage, we know there's still a lot of customer "sticker shock" out there. Or as one fellow sign seller put it: "Everybody wants an LED until they see how much they cost."

    Buying a digital sign can indeed be a sizeable investment. However, it is an investment that has a return. That fact is what gives you the opportunity to make a pencil sell.

    The sign seller who can effectively perform a pencil sell will be more successful than one who allows the customer to put off their purchase based solely on the cost side of the equation.

    But why go to the trouble of learning to pencil sell? Well, just for fun, allow me to pencil sell you that answer. Let's say that 1,000 of your past customers hired you to incorporate a new digital electronic message center (EMC) into their existing structure.

    On average, you estimated you could earn $3,000 net profit from each job: 1,000 customers X $3,000 profit = $3 million total net profit

    Got your attention? Okay, let's keep moving.

    What do you need to know for a pencil sell?
    First off, most customers appreciate it when you take the time to understand their business. Lazy sign sellers may just want to lob a price quote over and hope for the best. But, spending quality face time with the customer, asking questions, understanding their business, helps earn you the right to present a proposal including cost justification and ups your odds of closing the sale.

    Lincoln Parish Library

    But remember, when presenting a pencil sale to the customer, timing is everything. Don't present it too early and never if the customer has already agreed to a pre-qualified price range. Also, don't call it a pencil sell. That's a sales term. Instead, saying something along the lines of "this is how the product can pay for itself" works much better.

    And a pencil sell is best used when a customer is balking at the price and needs to be assured that the amount they need to spend has cost justification. In other words, they want to better understand why they spent the money.

    For example, let's say the customer has a case of sticker shock and, as a result, the conversation is going like this:

    Sign Seller: The price for this electronic message center, including installation and a 5-year warranty, is $45,312.

    Buyer: That's more than we can afford to spend right now. Couldn't we get by with something much smaller and cheaper?

    Sign Seller: Of course you could, but according to your sign survey, this is the right-sized sign for your place of business. Rather than revert back to one that isn't, would you feel more comfortable if you were convinced that the right-sized sign would pay for itself?

    Buyer: Yes

    Sign Seller: Okay, then let's take a few minutes to see if we can get you to that comfort level

    Here is some of the information you will need to know for your pencil sell:

    • The total cost to the customer of the EMC you're selling
    • Average daily traffic past their location (ADTs are usually available from the city or on-line)
    • The customer's average sale amount (Total annual sales/number of sales) If the customer doesn't know their average sale, play the high-low game with them until they feel you both have the correct average sale amount
    • Annual advertising budget and how is it distributed between mediums (magazines, TV or cable, newspapers, off-premises billboards, direct mail, etc.)
    • What response rate do they expect from the forms of advertising they are now using? For example, direct mail normally has a 2 % response rate.
    • Out of that response rate, what is their conversion rate? How many of those who responded to some form of advertising were actually converted into customers?

    When it comes to selling an EMC, the best prospect for a successful pencil sell is the owner of a business on a very busy street or boulevard.

    RENOLIT Calendered Vinyl - Top performance for various applications

    New EMC Installation

    Let's say your best prospect is a high-end furniture store. The owner is interested in getting an EMC but also thinks, right now, in this economy, he is not sure he can afford it. Before you meet with them, you check with the state department of transportation to learn that their location gets a tad over 25,000 vehicles per day. In a meeting with the owner and their chief marketing person you also learn:

    • Their average sale is $210
    • Their total annual budget for advertising averages $10K a month or $120,000 annually
    • They use newspaper circulars and direct mail to get their ads into the hands of 2 million people each year
    • Historically, their response rate for advertising has been around 2%
    • Not everyone who responds to an ad buys something. However, they do believe that 20% of those who respond become customers

    For any EMC-related pencil sell to work, it helps if the customer believes that an EMC is basically (just) a new advertising medium and really not that much different than their spending money to place an ad on an Internet web site, in a newspaper or magazine, or on cable TV.

    The advertising world calls ad viewings "impressions" with this being the basic premise: The more people see an ad; the more people buy the product or service.

    Traffic = Number of Eyes on Sign

    That's why it costs so much more to run a commercial during the Super Bowl or American Idol. It's because more people are watching.

    In the case of the furniture store, it's helpful for them to see having an EMC is one more way for them to get the word out that their all-leather recliners are half-off this week only. And the fact that they don't have an EMC out on there (yet) is an opportunity for you to make a sale.

    Placed in a high-traffic environment, in terms of cost per impression, EMCs compete very favorably with other, more traditional, forms of advertising. Therefore, being able to help the customer see the EMC as a more cost-effective advertising medium will also help you make the sale.
    Outdoor Living Center

    Here are two methods of presenting a pencil sell to your customers:

    Pencil sell no. 1:
    Leveraging a high average daily traffic (ADT) count It's best to use this one when you know the customer has a high average daily traffic count. The formula to use is:

    Annual traffic count X response rate X conversion rate X average sale

    Since we learned that the customer uses direct mail and has a 2% response rate, in this scenario, let's use a much-worse-than-direct-mail response rate of .005:

    9,125,000 vehicles (impressions) per year X .005 response rate X .20 conversion rate X $210

    The first year cost of the EMC = $45,312

    First-year return in dollars = $1,916,250

    Costs per Impression Chart

    Pencil sell no. 2:
    Shifting some of the customer's annual advertising budget over to pay for the EMC

    According to the customer, they pay $120,000 per year for 2 million impressions. They expect to get a 2% response rate, and convert 20% of those into customers who spend an average of $210.

    The formula for their expected return on their advertising investment is:

    Annual number of impressions X response rate X conversion rate X average sale

    Impressions X response rate X conversion rate X average sale = return on advertising 2,000,000 X .02 X .20 X $210 = $1,680,000

    The furniture customer spends $120,000 to generate $1.68 million in sales. That's 7.14 %. That's about average. The cost vs. return of advertising with the EMC ($45,312 spent to generate $1,916,250) is much lower at 2.4 %.

    If you were the customer, would you rather spend $2.40 or $7.14 in advertising dollars to generate $100 in sales?

    And that comparison gets even more lopsided in year two. The second year the EMC is paid for and is capable of generating another $1,916,250 for just the cost of electricity to run it!

    I really like pencil sell no. 2 because you're not put in the position of asking the customer to spend any "new" money. Instead you're asking them to move money they've already budgeted from one form of advertising to another.

    Randy Rogers has spent 30 years in sales and sales management and owns Main Street LED Signs, LLC in Minden, LA.

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