The biggest error many new businesses make, in their first few years, it to price their products or services too low. Of course, many go out of business within the first 3 years, some in the first year, as they never get off the ground financially, because they are not making any money.
Planning your success
A business that has not been planned well, from day one, can fail. Simple as that! Sometimes it is genuinely as case of bad luck, but often not.
So many businesses are drawn to the idea or practice of setting their pricing below their competition. They are under the misunderstanding that it will take the business away from their competitor and it will bring it to them instead. Wrong! Some businesses start with this strategy and then never review or adapt their business strategy again. They feel too afraid in case their customers leave them.
Cheap pricing and low margins
By doing this they may also have carved a place for themselves within their market that they may not have intended. They are now a high volume business model based on cheap pricing and low margins. It is difficult to pull away from this once you have gone down this route, particularly if it is what your customers or clients have come to expect.
Business owners who are always open to ‘negotiation’ at every opportunity, just to pick up a sale, or offer discounts at the drop of a hat when it is not necessary, unfortunately eventually realise that they are not making any profit. Their profit has walked out the door with their customers. What is the point to running a business and working for the minimum wage! They could have done that as an employee. Resentment can start to set in.
Cheap & Cheerful
Pricing too cheaply reflects back to the business and all it stands for, particularly when supplying a service. People assume that cheap means inferior. If you do not make any money and you’ve worked hard, then unfortunately you have a hobby business which earns you a small amount of money, a lifestyle business. If you are asked for (or offer) discounts regularly, it either means you were probably too high priced to start or are not very confident of what you’re offering, at the price you offer it.
Excelling your competition
You can also price too high. Too expensive and it may be perceived as arrogant pricing. A premium pricing is fine, as long as you offer a premium product or service to back it up, something different or something which excels your competition. Pricing will eventually (or quickly) make or break your business. You need to get it right at the beginning! You need to know where you stand in your market place.
Pricing is a mind-set as much as anything else. Do you actually understand your worth? Are you confident about your ability and what you offer? Do you understand the true value that you can bring to your customers or clients? Do you provide a solution that saves them pain and angst, or are they buying a ‘need’ or a ‘want’ from you? Most pricing is set by the lack of confidence from the business owner. Of course, don’t create ridiculous pricing and then wonder why you never have any clients or customers buying from you. It really is a fine balancing act.
A bespoke & unique business
Often when I have sessions with clients I can advice them where they ‘sit’ in their market space and how to price accordingly, for what they are offering. Most businesses have some sort of ‘bench mark’ to compare against unless they have a completely bespoke and unique business. Some don’t realise that they actually do, and can charge accordingly!
Knowing your USP and what makes you stand out, will help when you are setting your pricing.
Profit & Loss
At the end of the day if your business is not making a profit, then you must question why. Maybe your costs are too high and prices too low. Do you monitor your profit and loss reports regularly, to assess how your business is faring?
You need to understand your figures and see where adjustments can be made to increase your profit. Nobody wants to work their socks off for little or no reward!
If you are not happy with your profit or income and not sure why you’re not earning more, then perhaps we need to chat about your pricing.