The setting of prices in your business is often an emotional, vague concept. And one of the most common mistakes that business owners make is setting their prices too low.
There are many reasons why you might set prices too low, or choose not to raise them periodically. Here are a few:
Fear of the economy – Times are tough. And it is really easy to look around and see people struggling financially, and leap wildly to the assumption that you should therefore lower your prices. Naturally, that will help, right?
Fear of the competition – Somebody will always have lower prices than you, somewhere. And it’s all to easy to think that if your prices are higher than someone else’s, that’s where the customers will go. The temptation is to set your prices as low as possible, in hopes that everyone will come to you to get the lowest price! (This is otherwise known as operating a charity, in some places.)
Status quo – Change is hard. Really hard. We get that. But when it comes to setting prices, if you’re unwilling to change them simply because “we’ve always done things this way”, then you’re not doing yourself any favors.
Fear of existing customers – Not only are you concerned at potential customers (or lack thereof), but you might be concerned about losing the customers you already have. A common fear we hear is that if you raise your prices, your customers will be angry and they’ll leave you. (Although, this opens up a whole new line of questioning, related to whether or not your customers are loyal to your business, and why or why not…)
Confusion about your product or service is worth – If you aren’t clearly explaining what’s involved in your product or service, or if you aren’t sure for yourself, it can feel very vague to attach a price to it. Vague pricing leads to great discomfort (for you AND your customers). Not being sure exactly what your customers are getting, and what that is worth in dollars or pounds or francs or yen or euros, that will go a long way towards preventing prices that are fair to you and your customers.
Thinking only in terms of time spent – If you’re focused just on how long it took you to accomplish something, and you calculate a rate based on how many hours it took you to do it, you might be robbing yourself blind. The most obvious reason for this is that you have a particular skill, and that allows you to accomplish something at a speed which would not be possible for someone without that skill. Just because it took you 3 hours, doesn’t mean that’s the value associated with it.
There are more, but the truth is that none of the reasons are good reasons. Setting prices out of fear, rather than confidence, undermines your business and your product in the long run.
Watch our free training session on setting prices. In addition to learning why you should probably set your prices a bit higher to start with, we’ve included a case study of sorts that will provide compelling evidence for increasing prices by a mere 10%. Watch now!