In today’s Wall Street Journal, Jonathan Clements proffers a few points of advice for home- and car-owners seeking to make their pricing more compelling to potential buyers. One of the interesting comments from the research concerns how the actual numbers used have a psychological impact on the level of product quality perceived by the prospective customer:
A round number, such as $595,000, will convey quality, while a precise number, like $595,385, will indicate a bargain. The reason: We associate precise numbers with lower-priced goods. A precise number may also signal that you have given a heap of thought to the price and you aren’t inclined to negotiate.
Reading this, my mind flashes back across the reams of financial projections I’ve seen (and built) over the years. I suspect that the same psychology of numbers applies to the financial slides entrepreneurs create for their VC presentations. After all, investors are (potentially) interested in buying into what you, the entrepreneur, are selling. So even though you’ve run the numbers a thousand times and can support every assumption in your model to the penny, you might do well to think about the level of detail you want to display in a pitch deck. If there is any truth to the research around the hidden psychology of numbers (any doubters out there?), you may well be signaling more than you intended.
When I see slides (not the actual models, mind you) forecasting annual revenue to the precise dollar, my skepticism grows: cognizant of the odds that those projections are even remotely on target, I discount the analysis more heavily on account of its feigned accuracy. On the other hand, when I see “rounded” numbers—all other assumptions being equal—I tend to give a little more credit to the presenter for not creating the pretense of accuracy where there can be none (or little at best). Rather than an invitation to haggle over the accuracy of the forecast, "rounded" data slides offer an invitation to talk about the business opportunity itself.
What are your thoughts on the psychology of data presentation? What do you see as the goal of financial projections in a pitch deck or business plan?
