“Create different levels of service. Some people only buy the most expensive item. Avoid losing sales: offer a stripped down version of your product or service.” ~Beth Silver (in “107 Ways to Leverage Your Small Business Through Marketing & Public Relations”)Small Business owners early on in their business’ lives find themselves with a particular dilemma. When you are starting your business you consider that any new customer is good for business! So, when they negotiate you down a third of your billable rate or 40% off your retail pricing, you accept with gleeful resignation. You have hopes that business will be different once you have a steady stream of customers. Why? After you have all these customers, you’ll have the bargaining power to raise your rates and really start to turn a profit, right? Sadly, this logic doesn’t hold muster for several reasons: you eat away at your passion by not valuing your most important asset (i.e., you), you attract the wrong customers which develops bigger problems down the road, and you create more financial problems than you solve by operating unprofitably early on in the business.
Consistent Value Is Getting Paid What You’re Worth; Ergo, Never Lower Your PriceStarting a Small Business is no joke, eh? It’s long hours, stressful, energy-consuming, and it can also be genuinely rewarding when you focus on your passion and skills, or your desire to overcome a challenge. You started your business to provide for your family, build a product or service that you can sell with the business and turn a profit, give back to your community, to fill in a gap for your retirement needs, or whatever other reason you had. In order to get up every day and do this, you need to be providing value to your customers but your motivation won’t stay very high if you’re not getting paid what you’re worth. I always tell my clients to price themselves so they are motivated to do the work. Who wants to get subpar work from you because you don’t feel like doing the work for the pay you’re receiving? This does a disservice to your new customers and to you.
The Ones Who Matter Won’t Mind and Those Who Mind Aren’t Worth the WorryThere’s a trick I learned in my teens. You take your 10 closest friends and add up their salaries, then divide by 10; this usually works out to be your salary. It’s remarkable how this works within a small margin of error for most people who earnestly do it. You are similar to the company you keep. And, that means that when you bring in customers who are all discount seekers and not best-value-seeking customers, you build up referrals to other discount seekers. Over the months and years, your business’ value gets eroded as you accumulate customers willing to keep driving down your price, not valuing you, and telling their friends and colleagues that they too can get low prices out of you. This hardly sounds like the best value for your time and effort.
Mo’ Money, Mo’ Problems…Uhm, No. Less Problems, Mo’ MoneyFor many years, I ran a commodity business. I was constantly pressured to lower prices and deliver the same great service. There were market and regulatory forces in play here that were beyond our control and so I grinned and beared it. Learn from my early mistakes in the business. Don’t lower your price unreasonably to save your business as it won’t actually save your business. I see this often now in coaching and consulting Small Business owners in this downward spiral, before I set them straight. Here’s what happens:
- You lose your passion and start cutting corners.
- You start to lose your best-paying customers who start to see the lower quality of your work.
- The decrease in good business makes you desperate to (a) bring in more underpaying and delinquent paying customers, and (b) not paying yourself and your own bills.