Janet is starting a business. She’s done her market research, she knows who her ideal customer is, and she’s decided on the first product to offer.
There’s just one sticking point: how to charge for it. She has settled on a price, but it doesn’t feel quite right. She’s not alone in thinking this – when she mentioned the price to a few friends, they raised their eyebrows and told her she’s undercharging.
But she’s terrified of raising the price and putting people off. She thinks she should focus on quantity over profit so that she can break into the market.
You might relate to this – do you start to panic when someone asks you how much your product or costs? Do you immediately drop your price if a potential customer says they can’t afford it? Did you price your product so low that you’re barely breaking even or operating at a loss? Or worse yet, do you even know? (*My handy spreadsheet below can help you!)
Many people let emotion get in the way of their pricing strategy. Sometimes emotional pricing can be caused by a fear of success, low self-worth, or even just a compassion for those you’re most trying to help. You want people to be able to afford you because you are so passionate about helping them.
Yet, there are several dangers to keeping your prices too low.
Firstly, people often attribute how valuable something is with how much it costs. If you price too low, people may think your product or service is of lower quality.
Secondly, selling at a lower price means you will need to sell more volume to cover your costs. More volume = a larger pipeline of leads = more effort towards sales
Can your business manage this?
Thirdly, a low pricing strategy may also backfire because you could lose customers when you’re later forced to raise prices to cover your costs.
And finally, if your prices are too low, you may go out of business because you can’t cover your costs. Without your business, you won’t be able to help anyone.
a pricing formula
Make a start on setting solid, healthy prices by walking through this formula:
1. Be clear on the problem you solve and how much it costs your customer if they don’t solve it. If you’re unsure of these answers, you must conduct some customer research.
2. Figure out exactly which products and services you are providing so you can understand the natural market price range for these. Then do some competitor research.
3. Understand your own costs so you know exactly what you need to break even.
over to you
Do you feel stuck in your pricing? Are you letting emotion get in the way of setting solid prices?
I’ve put together a simple startup pricing calculator, so that you can take the emotion out of it and get started on your strategy.