Why nearly all small businesses fail at pricing.

You choose your prosperity by the choices you make on price!

As a business success coach the single biggest mistake I see most small businesses make is on pricing. Pricing is the one area that can and does make a massive difference to you and your business. As a startup, get it right and you can explode out of the blocks, but if you get it wrong it can lead to months if not years of misery and ultimate failure. In this short article I’m going to share with you the 5 most common mistakes that I see people making with pricing and the way to raise your prices without losing any customers.

The first thing to recognise with your prices is that how much you charge determines pretty much everything in your business. It determines, what type of customers you can attract, what type of staff you can attract, what your competitors think about you, your credibility and perhaps the most important point, how much money you can make. So your thinking on setting your prices is really important.

So here are the five mistakes that I see startups and most businesses make when setting their prices.

Using textbook formulas, industry norms or other ‘standard means’ of setting their price. When I’ve asked people starting a business how they established their price the most common answer I get is that, I looked at what everyone else was charging and just set my prices a little lower in order to attract customers (see point no.3 as why this is a really bad idea). Using this method of setting your price completely ignores what you want to get out of the business and your cost base.
Excess concerns about their competitors’ lower prices. “No one ever bought anything on price”, perhaps this sounds a bold statement but think about this. Price only becomes a factor when you’ve failed to establish your value. If you establish your value then you can charge significantly more. If you give four times the value you can charge twice as much.
Attracting customers who buy on price. The problem with attracting customers who buy on price is, all they value is price, they have no loyalty and will switch to the next business that is offering a slightly lower price at the drop of a hat. Successful businesses focus on building a loyal following and this is impossible attracting this type of customers. As many businesses have found when using Groupon incorrectly.

Having a predetermined belief system about “what they’ll pay”. The first thing I tell startups is, “You are not your customer” and what they value is not necessarily the same as what you value, so if you find yourself saying “I wouldn’t pay that” then please remember this advice.
Allowing Apples to Apples comparisons. If your client or customer can not tell the difference between your offering and that of your competitors then the only logical decision they can make is on price. I always tell my clients to focus on having apples to oranges comparisons, this takes price completely out of the equation in the customer or client’s mind.

Obviously there are a lot more mistakes I could write about but I’ll save them for another time. Here are a few ways you can raise your prices without encountering any opposition or losing any customers:-

Any price you currently charge that ends with a zero through six… such as £90 through £96, increase that price so it ends with a seven or eight… such as £97 or £98. You will typically meet with zero resistance when doing this, and a zero impact on your conversion rates, If you’re apprehensive, try a small test over a one day period. If you see pushback from your customers you can elect to immediately go back to your original price, and don’t forget that the extra you charge goes straight to your bottom line.
Use price differentials, if you’re in an industry where demand is irregular such as pubs or restaurants then think about charging more for the more popular periods. The airlines and train companies have been doing this successfully for years.
Offer more than one option, it’s an establish fact that 20% of your customers will buy a premium product if you offered it but most businesses simply don’t offer a premium offering.

So the next time you’re thinking about your business and why you’re not making enough money have a look at your prices. I’ve come across businesses who haven’t raised their prices in years, don’t be one of those business owners who take a paycut every year.

If you want to know how I can help you with your pricing strategies then drop me an email to info@johnolivant.co.uk.