I wrote today’s Weekly Bite on the topic of pricing. Â I was really happy with the post, and I realized what an important issue it is and that I should elaborate on it more. Because to be honest, there are just too many of us smart, savvy and creative entrepreneurs and small business folks who are underpricing ourselves out of business. I’ve done it before – certainly not to the point of going out of business. Â But enough so that I look back on my mistakes and kind of cringe at just how readily I settled for not having the right information to run my business effectively.
I don’t think we talk about pricing enough as business peers. Dollars and cents. I say, dollars and sense.
Pricing. It’s something that everyone struggles with when they’re first starting out in their business. It’s a challenge that requires finding the perfect balance between offering your products and services at their true market value, and remaining competitive. When I started my resume writing business in 2009, I charged a measely $85 to create, design, and produce a full-on professional resume. Today I charge $200 and up. And it’s not a matter of me just wanting to raise my prices for the heck of it; It was about looking at the market value of what I was offering, doing better research to get an understanding of what my customers (not me) were actually willing to pay, understanding the value to the customer of what I was providing beyond the money, and also looking at my own profit margin of what I was bringing in for each billable client hour.
I see people making three mistakes when it comes to figuring out pricing:
STOP! : Pricing based on what YOU would personally pay, instead of your customer.
I was big-time guilty of this starting out. I looked at my products and services, and then wrongly looked at my own personal budget, and asked myself, “What would I pay for this?” The problem with that, is that I am not my ideal customer. I don’t have a need for a resume, first of all, and my own financial habits might differ significantly from those of my core customer. I’m excellent at managing money, but I also have a lot of anxiety around spending it, and I’m not necessarily going to be the person who shells out $200 for a resume if I can do it myself. Particularly when I have a background in HR.
It’s about them, not you.
STOP! :Â Pricing way below your competitors in hopes of dominating the market.
If my competition charges $200 an hour for consulting, and I charge only $50, I’ll not only get tons of customers, but I’ll get HER customers as well. Right? Wrong. This might bring in a couple of quick sales, but two things will happen in the process: 1) You will attract non-ideal customers who don’t value what you have to offer and only care about price, and 2) You will drive away quality customers who would otherwise be willing to invest in you, but are skeptical of why your prices are so low. If you know you’re good at what you do, that you offer true value to your customer, and the experience they’re paying for will be a positive one, then you should have the confidence to set an appropriate price points that echoes that confidence.
STOP!Â : Lowering prices or underpricing because you feel like you’re “too new to the business” to charge market value.
Just about every coach or consultant I know did this starting out. There’s certainly an air of intimidation when you open up your own business and find yourself trying to blend in to a crowd of more established practitioners in your industry. It’s normal to feel “green”, but a lack of experience being your own brand doesn’t necessarily translate to a lack of quality. And if don’t feel that what you’re offering your customers is of great quality, you shouldn’t be selling it.
Now there are always exceptions to the rule of charging full price. For instance, if you’re just starting out, you may offer some “introductory pricing” as a way of generating interest in your business and announcing your arrival on the market. Promotional strategies work the same way, in that it’s fine to offer a discounted pricing to entice customers to buy, perhaps after a webinar or workshop, or during the holiday season. But anytime you charge below your appropriate market value, you should have a very clear strategic reason for doing so, so that you’re not watering down the perceived value of your products or services in the interest of making a few quick bucks.
But how do you know if your pricing is on par?
Aside from doing research or hiring someone to help you, here’s an easy way to gauge if your prices fit your market. First, look at what your peers are charging for similar services, and take notice of the patterns. Second, if you really question whether your customer would pay your prices, then your price point may not be appropriate for your market, or you are marketing to the wrong customer altogether. And third, if your customers are consistently not blinking an eye when they buy from you, there’s a chance you may not be charging enough.
It’s funny how much we as fellow business owners often shy away from talking about pricing with our peers, because we equate it with divulging how much income we make. But this is valuable information that we can all benefit from. Pricing is a tricky subject, and quite honestly an art form all its own, and it takes knowledge, skills, experience and strategic planning to execute effectively.
So yes, starting out you will probably feel a bit insecure, overwhelmed, or green when it comes to, well, the green. But it’s important to base your pricing strategy not on your own internal factors, but on the value of what you’re delivering to the customer. You’re providing a solution to a need, filling a gap, and creating a positive experience. That is worth something, and don’t underestimate what people are willing to pay for it.