- Small Business Trends - http://smallbiztrends.com -

3 Common Small Business Pricing Mistakes

Posted By Nicole Fende On May 6, 2012 @ 4:30 pm In Small Business Operations | 41 Comments

You’re rocking the sales funnel, bringing in new business and delivering to your clients like a super star. So why aren’t your profits growing too?

oops

You may be an unwitting victim of common pricing mistakes. These drive-by villains can kill your bottom line. Read on to learn if your profit margin is a target.

Small Business Pricing Mistake #1 – Everybody’s Doing It

You’re almost ready to launch a new product, but still haven’t set the price. To save time, and let’s be frank (or Betty or Joe… ) , to avoid the number crunching, you set your price based on your competitors’ prices. Although the lowest is $99, and the highest is $875, most are in a tight range between $425 and $475. Hmm… how about $462? $462.15? Perfect!

Does this scenario sound familiar to you?

There are two basic problems with this approach. The first is the assumption that your competitors are making a profit with that price. Even big corporations can have the wrong price and take a bottom line beating. While I hated hearing it as a kid, this type of pricing has me quoting my mom:

“If all your friends jumped off a bridge would you jump off too?”

The second problem with this approach is apples, or perhaps I should say apples to oranges. How does their expense structure stack up against yours? Is this truly an apples to apples comparison? Or did some Florida oranges sneak in? Even if, and that is one BIG if, their product is priced correctly, your expenses may be higher which would result in a price that is too low for your business.

In fact, if a direct competitor is an exact clone of you, how do you stand out? You can’t be a leader if you’re following someone else.

Small Business Pricing Mistake #2 – Death by 1,000 Cuts

When working with clients on their pricing I invariably hear, “Why are you asking about that? It’s such a small amount?” This profit killer isn’t a drive-by, it’s death by 1,000 cuts (yes that was really a form of execution). Small doesn’t mean harmless.

Consider a weekly expense that is $5. Seems like peanuts in the grand scheme of things. Now multiply that number by 52 weeks, at $260 it doesn’t seem quite so small. What if you were ignoring five different $5 expenses every week? That’s $1,300!

Small things add up, ignore them at your own peril.

Small Business Pricing Mistake #3 – Why Are You Working for Free?

Many entrepreneurs assume that their pay is in the profit margin. Wrong. Profit margin is what your company earns. What about your time? If you did that same work for another company wouldn’t you bill them? Any product or service you sell involved some of your time, shouldn’t you be paid for it?

Look at it another way. What if someone else had done the work? Wouldn’t you have to pay them? Calculate the cost of your time (if it helps, imagine you’re the employee) and include that in the price. And don’t forget to actually pay yourself.

If you still want to work for free give me a call – I have plenty of projects on my desk!

Final Thoughts

Have you made these pricing mistakes? Are there others you struggle with? What would be the easiest for you to fix today to grow your bottom line?


Oops [1] Photo via Shutterstock


Article printed from Small Business Trends: http://smallbiztrends.com

URL to article: http://smallbiztrends.com/2012/05/small-business-pricing-mistakes.html

URLs in this post:

[1] Oops: http://www.shutterstock.com/pic-12448279/stock-photo--oops-photographed-using-a-mix-of-vintage-letterpress-characters-cross-processed-for-a-vintage.html