Pricing can make or break a small business. Charge too little and you don’t make enough money to pay yourself without needing a part-time job or other revenue stream. Charge too much and potential customers will vote with their feet and don’t buy from you.
In my experience many business owners and self-employed people who visit the SiGNAL BiZHUB are undervaluing their products or services. Often, they don’t have the confidence to price their products and services so that they have enough of a profit margin to build a sustainable business.
If you’re undervaluing your products or services, come to our ‘Stop Selling Yourself Short!’ BiZHUB session to learn how to define your value proposition and align your pricing strategy with the value you provide. Click here for booking and details >>>
Don’t make these pricing mistakes!
Here are some common pricing mistakes where people charge too little:
Setting prices low to attract new customers. The problem with this tactic is that you attract bargain hunters who move on when you put your prices up. If you’re trying to make a low cost / high volume sales tactic work, you also need the resources to fulfil those orders. That means time (see the point on capacity below) as well as materials, storage space, potentially staff to help etc. All these additional costs need to be part of your pricing strategy.
Your prices don’t reflect all your costs. Business costs such as insurance, marketing, bookkeeping and software subscriptions often get overlooked when calculating how much to charge. But you still need to pay these so make sure you factor them in.
You’re not charging for your time. Many people who make a product fall into this trap. I’ve spoken to people who are making far below the minimum wage handcrafting products. If your objectives are to create an income for yourself, this isn’t sustainable unless there is a way to scale up and make multiple products at the same time.
Not having enough capacity. This problem can occur when you provide services that are charged at an hourly or ½ day rate but find it difficult to squeeze enough clients into one day to make it worthwhile. For example, if you offer clients a service in their own home / business premises such as cleaning or beauty treatments and need to travel between different jobs. On paper you might think your hourly rate will provide the income you desire, but you must also factor in the hours during the working day that you’re not earning, e.g. travelling to different locations or juggling family responsibilities like school pick ups.
Charging what your competitors charge. Looking at competitor pricing will give you a rough idea of where to pitch your prices, but don’t assume that they are making a profit or have sufficient demand based on their pricing. For some it may be a loss leader rather than a sustainable revenue stream, or it might be that their expenses are far lower than yours.
Mixed messages such as low prices for a high-quality product. Your pricing needs to reflect the perceived value of your product or services. So if you’re marketing your products by saying they’re better than what your competitors are selling, perhaps they should also be more expensive? Customers expect to pay more for the best product or service, especially luxury or bespoke, so if yours are cheap they may question whether they’re truly the best.
Waiting too long to raise prices. Many people worry that if they raise prices they’ll lose customers. But if your expenses have increased or you’re struggling to cope with demand, you need to put your prices up. The best tactic is to make small regular increases rather than holding off until you can’t carry on and are forced to make a large price increase. Your customers will cope better with two 5% increases over a period of time, rather than one 10% increase.
Having confidence in your pricing and value proposition is fundamental to building a sustainable business and income. If you’re finding it difficult and you need help to develop your pricing strategy and stop undervaluing yourself, come along to our BiZHUB session in February that’s all about delivering value, your value proposition and pricing >>>
If you haven’t been before your first visit is free, just select the option “It's my first visit, it's FREE!” when you register for a ticket. Click on the link below for details and booking.