3 problems with cheap pricing

Is cheap pricing really a problem? What price should you be selling at? After completing competitor analysis, many businesses price themselves below their competition with the belief they’ll get more business. In this blog, I’ll be explaining the problems this can cause and empowering you to charge what you’re worth!

1. The busy fool

If your pricing is too cheap, problems are plenty. Firstly, you’ll have heard the expression ‘busy fool’ and this really rings true here. You may be getting the extra business you’re craving but you’ll be working hard for it and generating very little profit. I would argue harder than you need, when the more profitable result could be achieved with a higher price.

2. Poor retention

This first issue with cheap pricing can also contribute to the second, which is poor client retention. If you’re providing a service and you’re the cheapest in the market you’ll likely be busy initially. However, if you are unable to cope with demand, the quality of service you provide will suffer. Customers who are just buying on price will move to the next cheapest at the drop of the hat.

If it’s a product you’re providing, you will likely have to use cheaper materials to sell at the lower price you’re striving for. Again, the quality will be lesser and the result? Poor client retention.

3. Getting the right clients

In a business to business environment, the right price is essential to attract your target market. Businesses know that a cheap product/service equals inferior quality.

A couple of years ago I started working with a marketing agency that was unable to attract the large corporate companies they desired. I discovered they were charging just £30 per hour for their services, which in that industry is more akin to a freelance/sole trader operation. The only work they could win was small businesses looking for stationery.

Since I started working with them, they have increased their prices in line with professional marketing companies to £65 per hour and are now able to win the business they crave.

Forget cheap pricing, charge what you’re worth!

So, don’t be a busy fool. Charge what you’re worth and you will attract better clients who value service and are prepared to pay for it. You will in turn be able to provide a higher quality product/service and this will lead to better retention, reputation and more new business. My blog on the relationship between price and value goes into more detail on this.

After all in football, the higher the price, the more skilled the player! It’s the same in business and if you are too cheap, what you’re actually saying is that you’re not very good.

As ever, if you need any help with putting this into practice then contact me for a free 2 hour business review where I will give you tools to immediately improve your business.

Have a great month!

Buying for business

In the process of reviewing the finances in a business, I’ll look at what clients are buying to determine their break-even point. This in depth review sparks discussion on how much is being spent and the value it brings. Very often, I discover that clients have opted for the cheapest price and as a new business that’s OK. In this blog, I’m sharing the reasons why this isn’t always sustainable.

Buying a service

There are certain functions in a business that you’ll likely outsource, such as accountancy, bookkeeping, marketing and so on. While price should definitely play a part in the decision making process, simply choosing the cheapest may not benefit your business in the long run, and could even end up costing you more than you expect.

Let me share an example of this. A client of mine needed some computer maintenance and made a quick, price based buying decision. In fact, the individual wasn’t properly qualified and created an issue with the entire system, costing thousands of pounds to put right.

So think about the your needs, check testimonials or get recommendations. Compare the services provided as well as the price when making your decision. In my example, a more expensive service initially could have prevented the huge bill.

Choosing a product

The same theory applies in practice when buying a product. Printers are a fantastic example of a product that can vary hugely in price. With small desktop printers costing less than £50 to commercial printers running into thousands, how do you know which to buy?

The answer is straightforward. For product purchases, compare initial purchase cost as well as running costs and longevity. Combine the two to give a more realistic figure on how much the product will cost over time. Not forgetting to ensure it does what you need it to! With all that information to hand, you’re well placed to make your final buying decision.

In the example of a printer, in fact the cheapest printers use the most expensive inks and often a bigger investment upfront will be more cost effective in the long term, as well as providing additional capability.

In our personal lives, we come across the same scenarios. When choosing a fridge in Curry’s, the options are from the budget basic to the dear but desirable. The extra functions combined with the improved reliability will account for the bigger price tags. So in business as well as at home, the message is very much, buy what is appropriate to your needs as well as your budget.