Image used with permission from Microsoft
The setting of prices in your business is often an emotional, vague concept. Perhaps you just looked around at what others were doing and followed them. Or maybe you thought about what “felt normal” to pay for your product or service, and began using that. As William Poundstone says, “Contrary to economic theory…we make do with guesstimates and a vague recollection of what things are ‘supposed to cost.’”
Small businesses are very prone to make some classic pricing mistakes. We will cover these in our upcoming webinar, but you can begin thinking about it by considering a few of the most common ones here:
Setting prices too low
This is all too common for most business owners. There are a few reasons we don’t raise our prices, including:
- Fear of the economy (my customers will leave on price because times are tough right now)
- Fear of the competition (if I raise my prices, others will lower theirs, and I’ll lose business)
- Status quo (this is the way I’ve always done things)
- Fear of existing customers (raising my prices will make my customers angry, and they’ll leave)
- Confusion about your product or service’s worth (not being sure exactly what your customers are getting, and what that is worth in dollars or pounds or francs or yen)
- Thinking only in terms of time spent (if I only spent a few hours on this, I can’t charge more than my per-hour rate)
There are many other reasons, but none of these are good ones. Setting prices out of fear, instead of confidence, undermines your business and your product in the long run.
Not understanding your true costs
This is something that impacts all your pricing mistakes. If you don’t have a true sense of what exactly each product or service is costing you, then you don’t realise what you are losing at your current pricing rates.
Obviously understanding your accounts is a first step (we’ve spoken of this before), because it will help identify not just the ‘hard and fast’ costs, but the more intangible ones as well.
Not having enough price points
People love to make their own decisions. And depending on your type of product or service, they may actually prefer paying a higher price for a premium result. (Remember the story of the seafood restaurant that put a discount price on its food and actually lost money, because when it comes to seafood, people expect a higher price for better food.)
Make sure you give your prospective customers the right options, and if they want to pay more, let them!
Forgetting what you’re really selling
We all know that the product is not always the real selling point. For example:
You’re not selling interior design, you’re selling comfort in the home.
You’re not selling a website, you’re selling the ability to get more business.
You’re not selling wedding photography, you’re enabling people to hold on to their memories for a lifetime.
You’re not selling a car, you’re selling independence.
And on it goes.
Think hard about what you are actually selling. Ask yourself – and your customers – what do they feel when they buy from you? What problems do they get solved? What stresses are relieved? What frustrations are done away with? What dreams are fulfilled? Consider your pricing based on those questions, and you’ll realise there is a greater value than you had ever considered before.