Many business owners, particularly when they are starting out, offer their products or services at a bargain-basement price. It’s really understandable and one argument goes, ‘I’m new, nobody knows me, so I have to charge low prices’.
I get it – I was one of those people until I realised it was an unworkable business model.
5 reasons not to undercharge
- You need to sell a lot more stuff to make money
- You’ll be busting your proverbials for not much in the way of profit
- You will be perceived as ‘cheap’ and low value – and you will be treated with little respect (people will pick you up and put you down as it suits them)
- There is an inverse price:difficulty ratio where people who want cheap are also often incredibly demanding and very hard work. They are often poor payers too
- You’ll probably deliver waaaay more value than your pricing indicates, and you’ll start to resent your customers and your business.
5 reasons to charge the right price
- Some people like reassuringly expensive – there’s a cachet to having something that costs a lot (and therefore not everyone can afford it). Why else do people pay £8k to buy the latest Omega Seamaster James Bond edition watch if they don’t secretly want to be him or flash it around to show how successful they are?
- There is a higher perceived value in what you do, with the respect that comes with it. This means if you’re delivering a service, people will turn up for meetings and do what they need to do, after all, if they’ve paid all that money, they better do the work
- The outcome (value) they get from your products and services far outweighs the amount they’ve had to pay
- You have to sell a lot less to make the same money
- It takes as much effort to sell an expensive thing as it does a cheap one (this was a revelation to me when I discovered it)
Clearly, if you’re selling a 5p widget, charging £10 for it is pretty unrealistic when you can go down to B&Q and get it for 50p.
Unless… your widget is made of something unbreakable that can be used on a space probe to Mars and is utterly vital to the success of the mission. In which case, you can probably name your price, and it won’t be 50p!
The solution
Price correctly.
Simple eh? Okay, it’s not so easy in reality when you’re desperate to get a sale.
But here are some things you can do that can help, meaning you charge the right amount and ensure your customers feel they are getting really good value for their money.
-
Understanding your market and your customer.
Ask yourself does what I do add value to my customers?
Clue: Yes, it does – if not, why are you in business? Or you’re targeting the wrong customers. -
Work on your self-belief
Get a good network of people around you who believe in what you do.
Remind yourself of all your years of experience, knowledge, skills and qualifications that entitle you to charge for what you do. -
Demonstrate your success
Ask your customers for testimonials, case studies and references that show you do an excellent job.
-
Have a quality product and back it up with really excellent customer service
Think Apple for product. Or if yours is a service industry, have a delivery model and system that delivers consistently for, and delights, your customers.
-
Own your pricing
You have to believe your pricing and understand it’s part and parcel of your business. Talking money is hard, but if you’re scared of your pricing, your customers will sense it and not believe it either, making a sale more challenging.
And if all else fails, show your prospective customers this image when they say they think you’re expensive!
