Not Pricing Properly
Not Pricing Properly
As an experienced business coach I often see what people do, without knowing, to fail.
Today I want to address another reason businesses fail: not pricing properly.
A strong argument could be made that the pricing issue should be addresses in the business plan. Let’s assume it was addressed in the plan but the pricing is not correct. Let’s look at three reasons why this could happen?
1. You never tested the pricing in the market or adjusted the pricing based on market demands.
2. You did not include overhead or cost of sales in your pricing model
3. You had wrong assumptions about pricing
Let look at why testing is so important. Several years ago I created a product and the intent was to buy my way into the market. I purposely priced it very low to make it attractive to my prospects. After talking to several people I realized this was a big mistake. Why? I priced it so low that people questioned the value. If it was so good why was it priced so low?
Over time I raised the price until I no longer heard questions about the value proposition. The questions changed. Now they are asking how they can afford it. Part of the reason the questions changed was that I built a better business case. I showed them why this product is important and how it could positively impact their business.
Ask yourself this question: Are you sending the wrong message to prospects by pricing to low (high)?
Let’s turn our attention to not including overhead into the pricing model. When pricing our products we need to include such things as overhead (phones, rent, cost of marketing, bookkeeping cost, cost of sales, salaries, etc) into our pricing model. If we do not include these items, we do not know if we are making a profit or if the profit we are making is enough to cover our expenses. Have your accountant help you with this. There is more to it than meets the eye and more then I have listed. I had many clients complain how busy they were but not making any money. Once we investigated the pricing model and assumptions we found they were selling the products below their cost.
The third issue is having wrong assumptions about pricing. This has more to do with your belief about pricing than anything else. If you think your product is only worth a specific amount, then that is all it is worth. In reality, the market may pay more. It is important that you test your pricing in the market. Compare your price to your competition, ask your prospects, and check with your business associates. Ask you accountant to verify your pricing against industry standards. Likewise the other extreme can happen: you believe you have THE product and you expect the market will come running to you so you set the price really high. After all, you invented a better mouse trap and the world should beat down the doors to get your product. Yet nothing happened. You may have built a better mouse trap but the world may not understand. It may not be a pricing problem but a marketing problem.
As a business coach I realized it is all about testing, measuring, and changing as you set pricing. It is always easier to set a high price and lower it than it is to set a low price and raise it, especially for existing customers.
So how did I handle the low price to the high price transition? Good question! I have maintained the price for those early adopters and as they move out of my program I raise the price to the new customers.
Call me if you have questions or need help.
Ron Finklestein
303-990-0788
ron@akris.net
