Are you underpricing your products or services?
Bonus Blog: How can small business tell if their prices are too low on their offerings?
Clate Mask (@clatemask) is the founder and CEO of Keap, a maker of sales and marketing automation software for small businesses. He also is co-author of “Conquer the Chaos: How to Grow a Successful Small Business Without Going Crazy.”
*** This article was originally in the Wall Street Journal on Friday, August 5th
One of the most difficult tasks a small-business owner faces is deciding what to charge for a product or service. All too often, they get it wrong—typically setting the price of their offerings too low and their revenue suffers.
Among the reasons for the undercharging: Many entrepreneurs undervalue their skill set and experience, especially when it comes to putting a price on knowledge and expertise; other owners don’t know enough about the market landscape and what customers are willing to pay; and still others fail to consider all the costs associated with delivering a product or service, or want to accelerate their volume of work in an effort to generate more revenue.
So how can entrepreneurs know if they are undervaluing their offerings? Here are some red flags that can signal it’s time to raise prices.
You can’t keep up with all the work
On the surface this can seem like a good problem to have, but dig deeper. While it’s nice to believe your product or service is so amazing that people can’t wait to work with you, the reality is that your business isn’t going to be the right fit for every client. Nor should it be. There’s a delicate balance when it comes to pricing, so if you’re struggling to keep up with an influx of business, it’s time to re-evaluate your price structure.
You’re struggling financially despite having lots of customers
Depending on your business, there are two key reasons why this happens. If you’re a professional-services business, you’re likely the victim of “scope creep”—that is, the scope of the work you do for clients often changes beyond what is initially agreed upon. Combat this by clearly communicating your plan with clients so both parties understand and are aligned on the vision, what each needs to deliver and the time frame for generating results. If you produce goods, it’s likely that your costs are cutting into your profit margins. Ensure you’re factoring all hard and soft costs into pricing, or you will likely set your pricing too low.
You’re doing a lot of custom work
This is a common problem for businesses offering professional services There is a place for custom work, but there is no need to recreate the wheel with each client. Doing so requires a lot of time and energy, which can impact your ability to scale. For most consultants and businesses that offer professional services, success comes from productizing proven strategies that work for an array of customers. Your clients know what they are looking for but aren’t sure how to get there, which is why they need your expertise. By identifying a process to implement time-tested strategies, you can efficiently deliver what your clients need to move their business forward without a heavy lift on your end.
You’re giving your knowledge away free
Generally, small-business owners genuinely care about their customers and want to help them. That’s commendable. But wanting to do good by your customers can’t come at the expense of your own business’s profitability. Your expertise and counsel are valuable and are something that your customers will pay for—so let them.