Working with creative and social entrepreneurs, I get to meet some really interesting and great people, with unique insights, perspectives and ambitions. Having said that, most businesses I work with are not extremely innovative in the general product or service they provide, and all to many make the critical mistake of trying to compete on price. Here are 4 reasons why being cheaper is so often a terrible idea, and why you should probably be charging more for your products and services.
1. Lose bad prospects before you lose your time.
Tyre-kickers exist in every industry, and you’re bound to come across that prospective customer or client who leads you on without ever actually committing to anything. Most customers make up their mind about a purchase well before they actually leave you. They’ll hang around to test the limits of their own insecurities and uncertainties, and as a result end up wasting your valuable time. In some cases, when they do commit to parting ways with their money, it won’t be worth it thanks to an arduous and tedious journey to the transaction.
Most of these bad prospects are going to be keeping one eye on you and another looking for a cheaper alternative. When you refuse to compete on price, and decide to openly charge more for a premium service, you’ll be disqualifying bad prospects before they even approach you. Instead you may well be getting fewer prospects. And not only will more of those prospects turn into paying customers, you’ll enjoy the journey much more.
2. Value yourself for an abundance mentality.
Many entrepreneurs determine a price for their products and services based on their own perceptions of what their time is worth, and then estimate how much time a sale item is worth. As those numbers add up, a brick wall often rises. A wall with big, black writing on it that says, “Whoa, that actually ends up being a fair bit! I can’t charge that much; no one will buy it!” The foundation of that wall is usually built upon the “no one will buy it” insecurity, which is deeply seated in an assumption that you desperately need a large number of customers to define your success. This is so often a paralysing fear for entrepreneurs and small businesses (especially start-ups), that it becomes a self-fulfilling prophecy, and really a matter of self-esteem. Adopting an abundance mentality will instil confidence and optimism in you that will give you the courage to live and enjoy your passion fully and successfully.
3. Compete with the fewer best, and forget the rest.
When you decide to establish low price as your first and main point of differentiation, you’re competing with a lot more alternatives than may be necessary. Price as a differentiator means you’re selling to those who are, at least generally, looking for the lowest priced solution to whatever problem you’re trying to help them with. In some cases, this solution can actually be no solution at all, whereas in most cases there will be a cheaper alternative to you somewhere out there in the big, wide, and increasingly accessible world. When you decide to differentiate based on variables other than price, such as quality, service and support, not only will you justify charging more, you’ll also be competing with premium alternatives. Hanging out with the ‘cool’ kids, and leveraging off the halo effect, can help your own business grow.
4. Position for business growth, not for sales growth.
It almost seems too obvious to be worth mentioning, but it’s incredible how many entrepreneurs start with a determined and singular focus to grow their sales. I’ve been guilty of this too. There’s obviously nothing wrong about wanting to increase sales. The problem is a narrow focus that neglects the growth of the business as an entity with a number of fixed and variable components that need to be kept in check. When you position yourself for sales growth, you may well succeed in the short and medium term, until you realise that your business infrastructure, and management and marketing systems have been left behind and can’t keep up. If you position yourself for business growth, focusing on the holistic well-being of your brand, which is determined by more than just sales figures, success will follow. It’ll also bring with it sustainability and scalability.
And here’s a bonus one!
5. Be weary of exceptions and limits.
This isn’t so much a reason to charge more, but a reminder that there are no silver bullets or magic pills in business and marketing. Whilst fundamental principles can be adapted and implemented in every business, specific strategies can’t always be picked up from one enterprise and put into another for the same results. There are obvious exceptions to charging more, such as with consumable and disposable retail products. There is also going to be a limit to how much you can charge for anything before tipping over to being unreachable to your market.
Having said that, if you’re a creative or social entrepreneur, it’s a very safe bet that with some careful and strategic consideration of your branding, you could and should be charging more than you currently are. Just remember, regardless of what you charge, always strive to deliver above and beyond the expectations of your customers. In the long run, service always trumps price.
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I think this is good advice. I often tell my clients to put up their prices and focus on value and don’t do it myself.
Thanks. I think most of the lessons I have to share came from learning from my own mistakes, and I’m sure I’ve been a hypocrite with many of those too. Half the reason I teach and write is to educate myself.
Here! Here! There’s no better way to weed out the time wasters than to say upfront what your solutions are worth (approx starting price) and to justify why. You’ll notice right away those who are genuinely looking for a quality provider from those who are fishing with no purse. Hands down the best clients we have are the ones that know we charge a premium (albeit a small one!) but know that they can sleep at night assured that they can rely on us to support their business. They value our regular input and insights (which results in repeat business) and see us more as partners than “the help”. It’s a lot more rewarding for everyone.
Thanks Martin. Love what you say about your clients seeing you more as partners. The tyre kickers who do end up hiring your services will still always be conscious of the money, which can be limiting, especially in creative work. So, in my opinion, when you can it’s best to work with people who value you properly, and then you can just move on to doing great work together.
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