When you have a small business, it isn’t easy to decide how to price your products and services.  There will always be other businesses that are at both ends (high and low) of the pricing spectrum, and sometimes their prices will be same as yours.

Small business owners often fall into the pricing trap, and commit some serious mistakes in pricing their products or services.  The biggest pricing mistakes that small business commit most often are following:

Price matching/undercutting

The trend among small business owners is to observe how their competitors are pricing their products or services and then price their services in the same manner.  Many small businesses take this concept one step further, and actually reduce their prices as compared to their competitors.  This is competitive pricing, and such pricing rarely benefits small businesses, but unfortunately that doesn’t stop them from doing it.

The first and most obvious disadvantage of this pricing method is that it eats up your bottom line.  So although the sales look good, the profit doesn’t.  And there is no guarantee that the sales will look good in the future either.  Many people perceive cheap products to be just that – cheap. They believe (rightly or wrongly) that the low price is related to poor quality.  Thus instead of increasing sales, you will actually end up losing many of your customers, which may push your profits down even further.

You should always try to set your business apart from the crowd, and provide value to your services by charging an appropriate premium for value.  People usually do not mind a high price – if you provide them with value for their money.

Focusing on pricing

In interactions with your present or your prospective clients, the focus should never be on your prices or the rates.  If you decide to go by value pricing, you are actually charging for the value you bring to the service.  This value should be the factor that should guide all communication.  People understand that when you are providing value, they will have to pay a bit more, and most of them feel good about the concept.  You don’t need to focus on the small minority of customers that does not like this.  When you can make your prospective clients believe in your company, your services and the value, the price becomes the secondary factor in clinching the deal.

You should always focus on these value propositions, and let your client visualize what he/she can expect when they do business with you.  Pricing should only come up at later stage, such that your services justify it.

Discounting

When someone asks for a discount, you should make them understand what they will be getting for the price that they will be paying.  While it’s a normal human tendency to ask for discount, and save some money, if you are able to justify the pricing, there is no reason why a genuine client would go away.

When you are doing business with a client, the focus should never be on the cost of products or services – at least not right away.  Remember that if you provide value, and your costs are in line with the market, your business will do just fine.

Khera Communications, Inc.

Khera Communications, Inc., publishers of www.morebusiness.com, an award-winning website filled with sample business plans, marketing plans, templates, sample contracts and business agreements to help entrepreneurs start and grow a small business, and a daily blog, www.bizthreads.net  Republished with permission.