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Your Rates – Could You Easily Be Charging More?

Your Rates – Could You Easily Be Charging More? post image

Starting a new business is so exciting. The business owner has so much to share with their potential customers they’re practically bubbling over. But they’re also a little scared and those little voices in their head makes them wonder if they’re giving enough value for what they’re charging.

“What if I’m charging too much?”
“What if they buy and don’t think it’s worth the price?”
“I’m new at this, I probably shouldn’t charge as much as the experts.”

Many people start off offering products or their time for free. It helps them work out the kinks and it’s a lot less scary (customers can’t ask for their money back if it’s free). It might also help build somewhat of a customer base.

Others underprice themselves again and again and don’t even realize it. How much time does it take them to create the product, how much $$ in supplies, how much $S in expenses? What is their profit margin? These are hard numbers and they need to be figured out and assessed before putting a price on the product(s).

Many new businesses tend to price products according to the standards in their industry. They don’t do the math and instead figure others have done it for them, so they price themselves right in the middle. But one company’s expenses and supplies and time can be vastly different from another’s, especially when one is a sole proprietorship and the other is a corporation.

Another thing to look at is how a business wants to position itself with the consumer. A low pricing strategy can backfire as it can make the product seem cheap and inferior. Pricing on the high end can give the image of a well-made product and great service. The higher end pricing may mean fewer sales though.

So how should a business raise their rates once they’ve figured out they’re not paying themselves properly or paying all expenses or making a profit? There are several ways they can go about it. They can raise them incrementally – perhaps quarterly or yearly. They can raise them for new customers first. This works well for services or coaching. They can raise the rates for existing clients on a specified future date with advance warning. New products just coming out can be given a higher price and the older ones retired. Also, business owners can even reinvent their brand with higher rates and get a new customer base.

If you find you’ve priced your products or services too low, question yourself as to whether you’re proud of your business and what you offer. If so, charge what your services and products are worth and concentrate your time marketing your new properly-priced business.

About the author: Paper Free Invoices started out as a small blog for my invoicing software business Paper Free Billing but has morphed into something much more useful. I’ve really enjoyed reading the guest articles and speaking with guest publishers so much so I’m always looking for talented bloggers to contribute. If you have any questions or feedback on this article, please find your voice in the comment section, we will try to answer every genuine comment!

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  • Phyllis Moore

    Pricing services or products too low can be a pitfall, as you have pointed out. Low prices can create the perception that what is offered for sale is cheap or of average or mediocre quality.

    Such pricing can also be indicative of how business owners or entrepreneurs feel about their products/services or even themselves. I think that’s what makes it all the more complicated to determine pricing. What begins as a seemingly straight-forward process can uncover psychological and emotional issues of self-worth and self-esteem, especially for a sole proprietor.

    I think getting input and recommendations from trusted advisers, mentors and other business associates may prove helpful in determining pricing. That, and also perhaps some test marketing to see how customers and potential customers respond.

    • oivas

      Hey Phyllis,

      So true on the self-worth and self-esteem part. I can vouch for that. I remember selling our services and there was a time when I used to have questions like “Why would he pay me so much?”, “I cannot get that kind of money!” and I totally understand this part.

      I was looking down on myself and therefore, at the services I was offering. In fact, one of my customers who also became a good friend, told me that I had actually under-priced myself by 180% from what his organization was expecting. On top of that the organization also negotiated with me further.. So, it was potential loss to me.

      180% ?? Can you beat that?

  • oivas

    This is so true. I was running a business and one of early engagement strategy was to price low so as to form a customer base, which we can then grow and earn more.

    It sure did work out from the perspective of getting few customers and getting them for a 2 -3 years, but there was a flip side, which we did not appreciate then. Since we were selling services and not products, our customers started expecting some discounts ever year and that was tearing into our cash flow and profitability. We were already low-priced and giving further discounts was badly hurting us and even took us to the red in certain accounts.

    So, we have to take all these factors into consideration while pricing. Thanks for your inputs! Really makes sense to me.

  • MoBowen

    When it comes to price, the great equalizer in my mind has always been this: In every service industry you always have the low-priced option, the mid-range option and the high-priced option. It’s not a matter of if the option exists… all three options are there.

    As service providers, we have to decide, “Where do you want to fit in?” Do I want to be in the low-priced category, the average/mid-range category, or do I want to be among the elite?

    I’ve sold both low-priced and high priced services. I will honestly say that it really didn’t require that much more work to get my high priced clients. It simply required different marketing tactics.

    If anything, the people with money to spend are easier to get because they’re not stressing about cash. Plus, higher priced clients tend to listen to what you say and actually follow your advice. They’ve invested more, so they have a higher stake in a positive outcome. Plus, if your clients are paying you more, that’s less work for you. (My favorite incentive!)

    Like Steve said, I think the main reason why a lot of people underprice themselves is because, it falls in line with what appears to be the norm. However remember, to a multi-millionaire, a Rolex might be the norm. The norm for people and companies with money might be very different from our ‘norm’ mindset.

    • Phyllis Moore

      Very good points, MoBowen. That upscale, high-end market can offer many benefits for the entrepreneur or small business owner.

      Getting such high-end clients, aside from the increased profits, is a good long-term strategy, as you can develop a track record in that market. As time goes on, you can get additional clients, especially through recommendations, and perhaps also publicity, if these clients are high-profile and known in their industry and/or the media. Getting testimonials from such clients, it’s an added bonus and very helpful in marketing.

  • Scottf14

    You can easily price yourself right out of business if you are not careful. The key I think is to know your target customer base and sell to them. A sale now and then to drag in new people is one thing, but it is important that you know your market and keep prices in a proper range. Jewelry, for instance, is a luxury market. Charge luxury prices!

  • I had a very difficult time determining my price for my writing. Some people want to pay by the hour and I prefer by the word.

    So, I figured out about how many words I can write in an hour and made that my hourly rate. I have a high end and a rock bottom, can’t go any lower rate (which is my full rate with a ‘discount’). I work with a lot of small businesses so I try to accommodate various budgets, project size and needs.

    Honestly, determining my rate is the least fun part of my business. I just want to write and not have to deal with anything else. But, won’t pay the bills that way, will I?

  • It is true that you should never start out charging too low whatever it is you may be selling.

    If you are selling a product or a service, you don’t want to start out charging the lowest price to simply undercut your competition but rather you should start out at a fairly higher price.

    If you start out charging low prices then you are going to attract customers who are looking to pay the least yet still expect the best quality for there money.

    On the other hand however, if you start out charging higher fees and start getting some customers, then you are more likely to attract customers who really need what you are offering and are willing to pay the price to get it.

    If you are selling a quality product or service, then you fees should reflect that it is just that.

    There are people out there who are willing to spend money and understand that quality comes for a price tag!

    Keep your prices a little higher and then whenever you want you can offer your customers a small discount and they will really appreciate it!

  • Danna Brown

    Thanks a lot for this article. I am about to start my own business online and I was considering charging a very low price to win customers interest. I really didn’t add up how much it would cost me to run the business and everything mentioned in this article, but now I am reconsidering some things. I’m glad I found this article before I actually got started.