Classic pricing mistakes most entrepreneurs make & how to avoid them.

Charging for your product or service when you start your business, can be a minefield....

The questions you might ask yourself...

"What will people pay?"

"What is it worth?"

"What is my competition changing?"

If you are not aware, it can be a pitfall many entrepreneurs fall into when starting up.

When an entrepreneur asks me..... How much should I charge?

I always reply in the same way, the price is actually pretty irrelevant if basing it on a straight comparison with your competitors. In fact the barometer for your own unique pricing should be based on these?few things....

Who are you are planning to target? and what would they be willing to pay?. But these two realities are not always the basis we use. It ultimately comes down to,?how well you know your perfect customer and this knowledge will get you?much closer to the right answer.

Throughout all industries there will always be drastically differentiating price points for basically?very similar offerings.

This happens time and time again, and it is often based on the confidence of the person who is pricing the product or service.

For example, Ive seen an orthodontist who charged ￡1000 for the same procedure that Ive seen another orthodontist charge ￡200 for. Is the orthodontist who is charging ￡1000 plating the customers teeth in gold? Is the ￡1000 orthodontist dramatically more qualified than the ￡200 one? Or offering anything substantially different ? The answer is No, they are both likely offering a very similar service but one is targeting a certain market and the other another.

So why are each of their?price points so drastically different for a relatively similar product? It simply comes down to this ….. confidence and worth.

Ive also had quotes from two different plasterers, one came to my house and quoted for a wall and confidently threw a ￡500 price tag on his “award winning and faultless” work. When the other, who’s demeanour was significantly more reserved, almost apologised as he handed me his quote for the same wall which was at half of the price of his competitor.

It’s highly likely the second plasterer could do, as good or even a better job than the first, however the delivery of his price point was significantly different and the belief he had in himself was reflected in his quote.

Limiting beliefs can be a major defining factor in how we conjure up our own unique price point. What do we feel our product or service is worth, in our own heads. This can sometimes be the invisible boundary that we set ourselves that ensures we under price a product, that in reality is entirely worth a whole lot more.

Have you ever looked at a product and thought that’s cheap?

When it relates to something like floor cleaner or shower gel you might take the gamble but if the item was, for instance a haircut or an extension on your house, there is a feeling of uncertainty with something of this importance if its too cheap. Would you take the risk or prefer to go with the more expensive option, because, in your mind… “they probably have more experience”

A price says a lot about the product and the person behind it.

We have all heard that?well known quote …

“you get what you pay for”

…and I can guarantee it applies on the majority of occasions.

There are those things we are willing to accept a slightly lesser price and ultimately, quality?for and those with which we are certainly not willing to compromise.

So, being the cheapest or as I prefer to say "the most inexpensive" isn’t always the preferred goal.

Ive made drastic mistakes in the past, where I have totally under charged. The goal was to gain a contract and be cheaper than my competition. At that stage I lacked confidence in myself, and this directly translated to my business model by me totally undervaluing my product and hugely overdelivering.

This is a classic mistake Ive seen made many times. When the pricing of the product is based on the basic elements like materials and packaging but leaving out the core costs like rent, light heat, and the big one - your own time.

So many times Ive seen business owners not add in their hourly wage. I get it, Ive done it myself, at the beginning you want to cut costs where you can and the easiest and default choice is to cut your own wages first.

I can already hear what your telling yourself… You know this business is fledgling and that cash flow is meagre right now, but …

“when things really get going and your making the big bucks you can pay yourself back”

NO NO NO stop doing it.

Yes you're the founder and yes sometimes you take a hit for your business, early on, but seriously you must make sure that your business is viable and profitable with the inclusion of your income at some point. Because cutting costs early to get started is one thing but not doing the maths to know that you can realistically incorporate a decent wage for yourself at a later stage is just bad business and frankly not at all sustainable.

But you know what, sometimes it’s not even a distinct decision, it’s often just a mistake. Owners just simply forget to add in their own income, a mistake Im highlighting, because I don’t want you to make it.

I had a client who was really impressed with the sales of her product in the first 6 months of her business, but she was struggling with cash flow. We sat down and went through her figures, she had costed everything except her time. When we actually added up the hours she had put in and divided up what was remaining, she was able to pay herself ￡1.80 per hour. Your time is absolutely a cost and needs to be factored in. In circumstances like this, she realised it was way more beneficial for her to be employed than to work for herself.

I work with new entrepreneurs, daily, to build confidence and conviction to?their elaborate business dreams, and help them to grow with practical and realistic financial goals. If you have been feeling like you could use a bit of help and assistance in putting together a pricing structure for your business you might decide to hire a business mentor like me.

There is a reason that the top performers in all disciplines work with someone to help them achieve bigger and better things. A coach or mentor can be invaluable to?help you?make progress in a way that is quicker and more effective than you could achieve on your own.

Empower, inspire and live with passion!