Warning: Dangerously Low Pricing Is A Hazard To Your Business Health

One of the hardest things for small business owners to do is figure out how much to charge. This is especially challenging if you’re a consultant or coach and don’t have a tangible product for customers to see and feel to help them visualize the quality of what they’re paying for.

Often times, there’s no connection to what we charge customers and what we actually provide.  It’s as if we pick a number from thin air because it sounds right or is a few dollars less than our competitors.

And while creating a pricing strategy that works isn’t easy for anyone, big or small, a common misstep for us, small business owners, is that we price ourselves too low.

Price vs Value

Simply put, value is perceived as something that is worthwhile and useful.  Customer value is defined as the difference between what a customer gets from the product or service we offer and what he or she has to give in order to get it.

And as business owners, we want our customers to exchange money for our products or services.  But early on, while many of us are in survival mode, we make an effort to guarantee that exchange by dropping our prices.

But there are a couple of dangers in doing that too often:

1. While you may pick up a sale or two, you also inherit “cheap-minded” customers who’ll always be looking for the lowest price.  This translates into noncommittal relationships with your business.
2. You cheapen your brand.  By allowing price to drive the conversation instead of value, you give customers permission to view your products and services as a commodity and basically auction yourselves off to the lowest bidder.

Understand Your Value

Now, let’s be realistic. As a small business owner, generating activity is essential for growth.  And going after ‘low hanging fruit’ or the easier sell to price sensitive customers may be a way to fill in the gaps.

But at some point, you have to go after the fruit growing higher up in the tree. And since these are tougher sells with bigger price tags, understanding your value and how it translates into customer satisfaction is vital.

It will be hard, however, to convince customers of the value you bring when you’re unsure of it yourself.  And when you’re unsure, you under price yourself as a cover.

The good news is that it doesn’t have to be this way. Take a few moments to think about what you’re charging now, and use these tips to plug in the holes.  Does your current pricing still hold up?

1. Do some soul searching.  Figure out what you’re good at and how it’s different from that of your competitors.  If you have a proven solution that no one else has or your methods run smoother and faster than the rest, don’t be afraid to factor that into your pricing.
2. Study your customers. Understand what experiences are important to them and deliver solutions where, when and how they want it.  Experiences are linked to usage and if you’re successful here, these experiences will be apparent in how much, how often, and at what price they agree to use you.

Finally, know when to walk away.  At some point, you’ll realize that the effort you’re putting in for what you’re getting back isn’t a match and it would be best to respectfully decline or not renew the relationship.

Are you having trouble figuring out your price strategy?  Let Crayons & Marketers help you find your hidden value.  Contact us today!