Pricing is a business strategy that many entrepreneurs and small business owners are intimidated about. The challenge is in trying to figure out where your company will fit on the pricing spectrum within your industry or niche. The temptation is to offer a lower price so you can attract more people. However, just because everyday low pricing works for Walmart, doesn’t mean it will work for you. The mistake many businesses make is setting pricing rates or fees based on what their competitors are charging. Should you be aware of what your competitors charge? Absolutely. Should you change your pricing because your competitors are priced lower than you are? Absolutely not.
- Cheap attracts cheap.
People who are on the hunt for the cheapest price are not as concerned with the quality, durability, and effectiveness of a product or service. They are typically looking for the least expensive option because it is all they can afford or all they want to spend. Therefore, cheap prices attract cheap people. Cheap people typically want more for less and complain about whatever they purchase if it doesn’t measure up.
If your prices are sub-par, the perception of your products and services will be sub-par. People will automatically assume that because what you are selling is so inexpensive, it must not be good quality. As human beings, we are wired to associate higher-priced items and services with being top-rated and of better quality.
If you are providing a service, you must be careful not to price your services too low because your target market is going to have the image of your brand that you are inexperienced or less skilled than someone who is priced higher. This may not be the case at all, but perception is the reality for most people.
Being the cheapest is not the best pricing strategy unless the goal is to sell items in massive quantities such as millions of items sold.
2. Value Beats Price for most people.
Value is about what we feel something is worth to us. The level of significance we place on the things we spend money on is very important to us. I don’t know anyone alive who doesn’t value a quality product or service. No one wants to buy something only for it to break or fall apart minutes or days after it has been purchased. Even budget shoppers want a decent value for their dollar.
The perceived value and quality of your products as well as your customer service must be greater than that of your competitor. And when it is, the price will not be such a big factor.
3. Low pricing forces lower costs.
When your prices are too low, you are forced to cut the cost that it takes to produce a product or service. When you are forced to cut the cost down, in most cases that also cuts down quality. If you have your prices low, the profit margin gap will also be low. Small profit margins equal low sales, low growth, and revenue. In order to make a significant amount of growth and profits, you’ll be forced to cut various costs. As a fiscally responsible business owner, you must ensure that costs are low (or at a reasonable level) to guarantee profits. However, joining the price race will make you cut down costs that are vitally important for the smooth functioning of your business.
4. Price comparison affects your mindset
Trying to compete on price forces you to compare yourself to your competition. If you ever find yourself competing on price, you’re in a race for the bottom of the barrel. And that’s a race you don’t want to win. If a business owner has the mentality that he or she must beat their competitors on price today, they will be forced to do the same thing next month or next year. It will be a constant race of who can offer the lowest price.
Not only does your pricing reflect your brand image, but it also affects your psyche. Any business owner who does not believe in the value of the products and services they are selling, will not pitch them with confidence. Therefore, he or she will not be successful.
Customers can smell a skeptical, timid salesperson a mile away. By the way, all business owners are salespeople tasked with selling their products and services for a profit. Therefore, it stands to reason that if you are confident in your offerings, you will sell them with confidence.
5. Low pricing means working harder not smarter.
When your fee structure is too low that means, you are forced to get more customers to meet your financial goals. Selling products and services at a low rate keeps you on the hamster wheel of constantly looking for new clients.
The fact is, when your rates are higher, you need fewer clients to achieve your financial goals. For example, if you have a service-based business, and the fee for your core service is $500 that means you must get 200 people per year to purchase that core service in order to make $100,000.00. However, if you are a service-based business, and the fee for your core service is $5,000.00 that means you only need to get 20 people per year to purchase that service to hit $100K annually. Depending on what you are selling, the work it requires to service 200 people is most likely not the same amount of work required to service 20 people. Quite simply, lower fees mean more time and more work for the service provider.
What should you do if you’re unsure about pricing?
Here are my top five suggestions to help you price your products and services effectively so you can make a profit.
- PRICE BASED ON VALUE ~ Rather than pricing your services too low, you should price your service offerings based on the value that you bring to the table. Ask yourself this question, what transformative result does my product or service provide for the end user? Remember, the benefits that your customers or clients experience as a result of buying from you are valuable to them.
- DO YOUR RESEARCH ~ Determine your pricing strategy. There are many different pricing strategies to choose from based on whatever you are selling. You can review this list by Intuit of 15 different pricing strategies you must know for your business.
- CONSIDER YOUR LIFESTYLE ~ Think about the lifestyle you want to lead. If you’re a solopreneur aka a self-employed professional, your job is to price your products and services for profit. How much money do you need to make each month to live comfortably? If your pricing doesn’t reflect your lifestyle, you might as well go back to being an employee.
- GET FEEDBACK FROM YOUR BEST CLIENTS ~ Check in with your repeat customers about your pricing. Ask them if they feel like they got their money’s worth when they purchased the last product or service from you. Customer feedback provides you with data you can use to determine the effectiveness of your pricing.
- DO NOT BE AFRAID TO RAISE YOUR RATES ~ If you are wondering how to raise your rates, review this article for suggestions on how to raise your rates and keep your customers.
In summary, pricing is a very tricky part of doing business. Pricing too low will lead to burnout and an overwhelming sense of failure because you will not earn enough money to stay in business. Pricing too high may keep you from reaching a certain segment of the population. However, you must approach your pricing in smart ways to ensure that your company realizes a healthy profit. After all, the number one thing you must do as a business owner is to make a profit.
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This article was written by Lori A. Manns. President of Quality Media Consultant Group. Lori is a multi-award-winning marketing mentor, sales coach, and trailblazing business strategist who works with small business owners and entrepreneurs to help them grow and scale their businesses. She specializes in sales and marketing strategies that result in her clients attracting their target market, gaining brand visibility, and growing revenue. Lori is President of Quality Media Consultant Group, a consultancy firm specializing in media, advertising, marketing, and sales. She is the founder of the Trailblazer Business Academy. where advancing entrepreneurs go to learn growth strategies and how to run a profitable business the soulful way. Lori is also the creator of the Sponsorship Sales Secrets.