Choosing a price for a product or service is one of the most challenging jobs a small business owner must complete. They make mistakes far too frequently; generally, they set the price of their services too low, which negatively affects their income.
Many business owners undervalue their skill set and experience, particularly when it comes to valuing knowledge and expertise; other proprietors lack sufficient knowledge of the market and what customers are willing to pay; still other business owners neglect to take into account all the costs associated with delivering a product or service; or they want to increase their volume of work in an effort to generate more revenue.
So how can business owners determine if they are undervaluing their products? Here are a few warning signs that suggest price increases are necessary.
You can't handle all the work.
This can appear to be a nice problem to have. While it's lovely to think that people can't wait to use your product or service, the truth is that not every customer will be a good fit for your company. It also shouldn't be. Pricing is a delicate balance, so if you're having trouble keeping up with a surge in business, it's time to review your pricing strategy.
Despite having a lot of consumers, your financial situation is dire.
Depending on your business, there are two key reasons why this happens. If you’re a professional-services business, you’re likely the victim of “scope creep”—that is, the scope of the work you do for clients often changes beyond what is initially agreed upon. Combat this by clearly communicating your plan with clients so both parties understand and are aligned on the vision, what each needs to deliver and the time frame for generating results. If you produce goods, it’s likely that your costs are cutting into your profit margins. Ensure you’re factoring all hard and soft costs into pricing, or you will likely set your pricing too low.
You perform a great deal of custom work.
This is a frequent issue for companies that provide professional services. Custom work has its place, but there is no need to reinvent the wheel for every customer. It takes a lot of time and effort to do it, which may hinder your potential to scale. Success for the majority of consultants and organizations that provide professional services comes from turning tested tactics into products that are effective for a variety of clients. Your clients require your knowledge because they are aware of what they want but are unsure of how to get there. You may effectively provide your clients with what they need to advance their businesses without exerting a lot of effort on your end by developing a procedure to adopt tried-and-true tactics.
You’re giving your knowledge away free
In general, small-business owners really care about and want to assist their clients. That is admirable. But being concerned about your consumers' needs must come at the price of your company's success. Your consumers will pay for your knowledge and advice because they are valued, so let them.
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