According to a recent study, out of the 28 million small businesses that exist in America, approximately 21 million lose money. So that begs the question: Why do so many businesses lose money? In my opinion, the main reason why small companies fail is because the prices are just too low. Because they are not able to sell their products or services at high enough prices, they are required to operate on margins and are thus unable to expand.
If you do not have tremendous capital, you should by no means attempt to offer the lowest prices in your market. Bragging that you have competitive prices will not automatically result in attracting new customers, but rather in raising a few eyebrows.
In my experience as an entrepreneur I’ve always tried to show small businesses how they can increase their profits by raising their prices. They will always tell you the same thing: Our industry is so competitive that we must have small prices so that we have an edge over the competition. But you already knew from the start that every business is extremely competitive and you still decided to build your own company.
In my opinion, the attempt to match or even offer lower prices than your competition cannot be considered good business, but rather a sure way to failure. Every business needs increased margins so that it can flourish and expand. Price will always matter and you definitely need to raise yours. Every company can increase their prices if they are able to understand just a few simple tips:
1. Just do it. You don’t need to justify yourself or lose sleep over the decision. When you know the value of your product or service and your clients know it as well, increasing the price does not come as a surprise. Even if you are increasing your prices by a little, try it. Afterwards, analyze the whole process and see if it will stick. If you are too scared to increase the prices, just bundle services and products so that you are able to increase the average of the sales price.
2. Alternatives are a magical thing. Every customer can choose which product or service to purchase and choices will allow the customer to make sense of prices. Whenever you are showing the price of a service or a product, offer other products or services so that the asking price will make sense to the customer. Always offer a higher and lower price for each side of an offer.
3. Try the menu pricing strategy. Put your services on a menu and pricing highest to lowest. People tend to believe what they see more than what it coming out of your mouth.
Most small business owners believe that by selling your products or services at the lowest price on the market, customers will remain both happy and loyal. However, that’s not actually the case. I cannot really understand why, but most times, the customers that cause you the most problems are usually the one’s who paid the least.
We all know the phrase “You get what you pay for”. Therefore, sell value and a noteworthy experience along the product or service you are offering. People will always pay more for a service or a product they love that actually solves a problem.