When working with a new client who wants to start making more money in their business, without putting in more hours, one of the first areas I’ll be prying into is their pricing strategy. And time and time again I see the same 5 mistakes cropping up, holding their business back from becoming more profitable.
But the brilliant news is that these mistakes are so easy to sort out, and are certainly faster and easier to fix, than trying to go and find lots of new customers for your business. So, if you want to increase the profit in your business, I strongly suggest you start here, and work through these 5 mistakes to ensure you’re not making any of these in your business.
‘I don’t do it for the money’ syndrome
Argghh! This is okay if you’re a community interest perhaps, but let’s not forget some business basics here:
The point of a business is to deliver shareholder value
In most cases, this means value to you as the business owner, and that value is measured in terms of profit. Doing something you enjoy, and making money from it are not mutually exclusive, and to combine them is not wrong; but it seems that some business owners think it’s wrong on some level to want to make money.
Fix: Accept that running a business is about making a profit. If you are genuinely not interested in making a profit then you may want to change what you do to being a hobby instead. Making a profit is the aim of business, and just think what it would enable you to do? You could give it all to charity if you want to!
Trying to compete on price
It’s quite normal when starting a business to panic about the following dilemmas – ‘how do I compete with other businesses offering the same as me?’ and ‘how do I get my first customers?’ You can end up reacting with the – ‘I’ll offer it at a lower price’ strategy.
That’s okay if you’re Tesco or the like, and are trying to get people into the store so that they spend more money on other things you sell.
But very rarely (if ever), does competing on price work for a micro business.
You end up attracting the type of customer who is only interested in the cheapest price, and they tend to also be the type of customer who want a pound of flesh. So you end up working really hard to keep these customers happy, and you’re not actually making much, if any, money.
Fix: Identify other areas you can compete on, such as service, quality, speed or expertise. Ask yourself – What is different about your business and your products or services? How are you easing a problem faced by your target clients?
Basing your pricing on the time it takes you to produce the work
Especially common in service based business, is pricing by time i.e. by the hour or day. In fact, lots of service based professionals just assume that this is their industry norm and ‘how things are done around here’.
Why this mistake is two-fold;
- It limits what you can earn in your business to the number of hours you have available
- It focuses your customer’s mind on the time it takes to produce the work, rather than the end result.
Let’s face it, if someone wants to buy someone else’s time, they can do so pretty cheaply elsewhere. But your customers don’t really want to buy your time – they want to buy your expertise and the results you will bring to their business or life.
Fix: Start digging a little deeper and understand what results your customers are really after, and start pricing according to the value and results you deliver. Get creative and look at how you can package up your services and avoid pricing by time.
Justifying the price you charge
Ever had someone quote you a price and then go on to explain in detail ‘why the price is what it is?’ Makes uncomfortable listening doesn’t it? It gives the impression that the person quoting the price isn’t comfortable with it, and feels the need to justify it. Yes, explain the results and benefits – but don’t go into detail explaining the price. Your prospective customers don’t want to know that the price of your utilities bill has gone up, or your raw materials have increased, or the price of petrol has risen again.
Fix: Be confident in the prices you quote, explain the results and benefits your customers will get, but do not attempt to justify the price. Simply zip your mouth shut after you’ve given the price and give the customer time to decide, or ask questions.
Not offering a premium priced choice
If you’re not giving your customers different price points, then you are not only missing a trick to increase your profit, you’re also not giving your customers the choice they want. We all know the airline example, right? They often have a standard 3 tier pricing structure along the lines of economy, business class and first class. Most people choose economy, but some will pay more for the extras provided in business class, and an even more select few will pay considerably more for the luxury of first class.
Where are you giving your customers the option of a premium priced offer?
Fix: Consider what your customers will pay more for (think along the lines of speed, more done-for-you, exclusivity, comfort, ease, expertise), and start to offer a premium choice. Try it out and see what works.
Let me know in the comments below if this has helped you with your pricing strategy.