How to Avoid These 7 Common Mistakes When Setting Prices in Your Business
It's a common dilemma for businesses and certainly one that small businesses owners find challenging, a barrier to growth and a taker of profits - pricing.
The right pricing strategy is crucial to business success, whether you sell products or services.
Indeed, it is easy to overlook setting the price until it's too late.
You may question how to price competitively in your chosen market, knowing the value of your product or even consider what your time is worth.
However, many business owners do not factor overall running costs and the value for money provided to customers.
This article considers seven of the most common and costly mistakes made by small businesses in setting and negotiating their prices and suggests ways to avoid these costly mistakes.
Mistake 1: Basing your prices on your competitors How to avoid mistake: You don't know how they've come up with that price; it might be a loss leader that they've already factored into their marketing budget.
Ensure you calculate the cost (money and time) of providing your services, then assess how competitive this is in your selected target market.
Mistake 2: Lowering your prices to match competitors How to avoid mistake: Again, they could lower their prices for reasons that don't necessarily align with your goals, and will have factored losses into their budgets that you hadn't considered.
Ensure you know the real costs of delivering your services or products to customers Mistake 3: Deciding prices just before you start trading How to avoid mistake: It's dangerous because you don't have a real-time idea of the costs of acquisition and development, research, meetings, phone and computer usage, and therefore will not know if your price represents value to the customer.
Do your research.
Work with a Pricing Strategist (not the same as an Accountant) to develop your pricing strategies -you will avoid leaving money on the table.
Mistake 4: Using low prices as your core business model How to avoid mistake: There's a place for this tactic to gain new customers; however, basing your business model on this is dangerous.
You're not necessarily building a foundation of loyal customers, rather those that are only on the lookout for bargains.
Mistake 5: Not building customer service into costs How to avoid mistake: Excellent customer service is an invaluable commodity in itself.
Providing value for money to your customers by giving them great service is of course paramount.
Don't undersell yourself and undervalue the service and solutions you provide.
Mistake 6: Underpricing a service How to avoid mistake: Remember that a service, unlike a product, is intangible, so people tend to judge the quality of your service on two factors - recommendations and price.
If you underprice your service it can appear 'cheap' and inadvertently turn people off.
Mistake 7: Not asking your customers about what additional value they would like from how you supply your products or services How to avoid mistake: If you need some way of assessing your value for money offering, ask your customers, or you may find you're losing sales because you have not adapted to their needs.
Providing value for money requires constant monitoring.
Offering free trials of a product or service at the start of trading is one method of testing the water from the outset.
However, that approach can create a culture of 'freebies' that would not necessarily convert into enough paying customers.
And, remember: If your customers are other small business owners, then find the 'hungry crowd' willing to pay for what you provide from those willing to invest in themselves and their business to achieve longer lasting and higher returns for their business.
Ensure you assess both value for money and how your product or service fits with the values of your customers.
When you know which of your customers prefer premium packages of your services or products, then it will be a joy to work with them to deliver even greater value for their business, as well as yours.
The right pricing strategy is crucial to business success, whether you sell products or services.
Indeed, it is easy to overlook setting the price until it's too late.
You may question how to price competitively in your chosen market, knowing the value of your product or even consider what your time is worth.
However, many business owners do not factor overall running costs and the value for money provided to customers.
This article considers seven of the most common and costly mistakes made by small businesses in setting and negotiating their prices and suggests ways to avoid these costly mistakes.
Mistake 1: Basing your prices on your competitors How to avoid mistake: You don't know how they've come up with that price; it might be a loss leader that they've already factored into their marketing budget.
Ensure you calculate the cost (money and time) of providing your services, then assess how competitive this is in your selected target market.
Mistake 2: Lowering your prices to match competitors How to avoid mistake: Again, they could lower their prices for reasons that don't necessarily align with your goals, and will have factored losses into their budgets that you hadn't considered.
Ensure you know the real costs of delivering your services or products to customers Mistake 3: Deciding prices just before you start trading How to avoid mistake: It's dangerous because you don't have a real-time idea of the costs of acquisition and development, research, meetings, phone and computer usage, and therefore will not know if your price represents value to the customer.
Do your research.
Work with a Pricing Strategist (not the same as an Accountant) to develop your pricing strategies -you will avoid leaving money on the table.
Mistake 4: Using low prices as your core business model How to avoid mistake: There's a place for this tactic to gain new customers; however, basing your business model on this is dangerous.
You're not necessarily building a foundation of loyal customers, rather those that are only on the lookout for bargains.
Mistake 5: Not building customer service into costs How to avoid mistake: Excellent customer service is an invaluable commodity in itself.
Providing value for money to your customers by giving them great service is of course paramount.
Don't undersell yourself and undervalue the service and solutions you provide.
Mistake 6: Underpricing a service How to avoid mistake: Remember that a service, unlike a product, is intangible, so people tend to judge the quality of your service on two factors - recommendations and price.
If you underprice your service it can appear 'cheap' and inadvertently turn people off.
Mistake 7: Not asking your customers about what additional value they would like from how you supply your products or services How to avoid mistake: If you need some way of assessing your value for money offering, ask your customers, or you may find you're losing sales because you have not adapted to their needs.
Providing value for money requires constant monitoring.
Offering free trials of a product or service at the start of trading is one method of testing the water from the outset.
However, that approach can create a culture of 'freebies' that would not necessarily convert into enough paying customers.
And, remember: If your customers are other small business owners, then find the 'hungry crowd' willing to pay for what you provide from those willing to invest in themselves and their business to achieve longer lasting and higher returns for their business.
Ensure you assess both value for money and how your product or service fits with the values of your customers.
When you know which of your customers prefer premium packages of your services or products, then it will be a joy to work with them to deliver even greater value for their business, as well as yours.
