You are / were in a hurry to go out of business, if you are / were playing limbo with pricing.
It’s a pretty simple formula really: your price needs to be able to cover your hard costs PLUS your soft costs AND leave you a profit from which to pay your business, its workers, and yourself. If your price doesn’t do that, then it’s not doing its job, and you need to fire that price immediately.
Why Pricing Is Such a Big Deal
Pricing is so important, and yet, the small business owner attempts to try to match the bargain-basement prices found by the larger companies who have the buying power and connections to be the low-price competitor.
Over and over I’ve seen companies drop their price again and again in a ping-pong match of wills to beat the competition.
There are three platforms on which a company can compete:
- Price
- Quality
- Service
Pick 2 of these, and I dare say that price should be last. You should always strive to make your customers happy with quality and service such that they would be happy to pay the price.
Chances are, if you are a small business or a professional, you are not able to be that low-price competitor. And, quite frankly, you don’t want to be there. There’s little room for error, and you likely don’t have the volume of business to make up for mistakes like many of the larger companies have available.
But survival is more than just price; it’s the profit margin that’s built into that price. You can have a great high price, but if your costs are too high, you’ll find yourself underwater very quickly, swimming in a deeper pool of debt than just your debt-financed operating capital (see the last chapter). Now you’ll owe your vendors cash, and you may find that, with thin profit margins, you’ve created thin margins for error. Just one project gone wrong, and your whole direction can change.
While we’re at it, let’s dispel the prevalent myth out there: YOU WILL NOT MAKE UP YOUR LOWER PRICE IN VOLUME!
Also, once you’re branded as being the “low-price guy,” it’s really hard to break the stigma… you essentially find yourself starting over and rebranded–a potentially expensive proposition. Moreover, do you want to be hanging around with the customer who is always badgering you for a lower price and devaluing your service or product? Work with those who value your company for what it is and what you bring to the table, not how much you’re willing to bleed (money) for them. I can tell you honestly that I speak from personal experience on this.
Charge what the market bears, but charge what makes sense for your business. Be fair, but, above all, be fair to your enterprise, your people, and yourself.