When it comes to starting your own business, setting prices is one of the most important challenges you may face. Your prices have a lot to save about the value of your product or service, so you need to make sure that what you are charging is fair. The right price gives you the opportunity to create a platform for success. Get it wrong, however, the implications for your sales, cash flow and profitability can be quite rough.
Optimal Prices when Starting a Business
Setting your prices too high is sure to be off putting to customers, especially if you are only just starting a business and haven’t yet made a name for yourself. Setting them too low, however, can also have a similar effect as it forms a false perception of the value of what you have to offer.
The right customer knows value for money, cheap does not mean “worth what I’m paying”. Some may be willing to pay your competitors more if they know they will receive a better value product or service. It also means less profit if you choose to set the bar too low. You should be setting yourself optimal prices that enable you to maximise your profit margins while keeping your prices appealing to potential customers.
Why do so Many Starting a Business get their Prices Wrong?
Starting low is a more common problem than setting prices too high. Many business owners, especially those in the process of starting a business, often find themselves guilty of setting their prices too low in order to guarantee themselves sales. After this, they are then too scared by the idea of losing customers that that become reluctant to bring the prices up. This, however, is simply unsustainable.
The danger of this is that you find yourself working longer hours just to stay on top. In the worst cases, you can end up losing money on sales. Using price as your competitive edge is an extremely risky strategy. Competitors may intentionally undercut you to drag your business down.
Value is much more important than price. It isn’t just about what you charge your customers, it’s about what value they get in exchange for their payment that matters. If customers believe you are truly the best value, they will understand the reasoning behind your prices. Many customers are willing to pay more for better value where quality matters.
When it comes to setting prices, you need to know what your customers want and how much they are likely to pay for it, as well as the prices of your competitors. If you don’t know the answers to these questions then the prices can be way off. While having an unrealistic expectation is usually responsible for high prices, you can at least later offer deals and discounts to keep up with the competition.
How do I know if my Prices are too low?
Setting low prices when starting a business can lead to you working extreme overtime with very little to show for it. Just getting by or struggling to manage is enough to tell you that it’s time to up the price game. When you set the prices low, chances are you’re going to receive customers who are looking to pay very little, yet receive extras on top at the snap of their fingers. When it comes to starting a business, talking to an accountant should help you determine whether your prices are too low, and can help you assess your costs.
Get Expert Financial Advice for Starting a Business
It’s important to get into the habit of reviewing your prices on a regular basis, and to never view your prices as permanently fixed. When your costs increase, your customers should be understanding of your reasons for doing so. The more you assess your pricing, the better your skills will get. So get into the habit while you are starting a business to be sure it is drilled into your brain once things are up and running.
If you are looking to talk to an expert accountant for all your business start-up needs, then look no further than Steven Glicher. Get in touch today to see how we can help get your business up and running smoothly.