How Are Your Prices Killing Your Business?

19th Apr 2012

NB: This is an article written By : Jeremy Knauff the  CEO at Jeremy Knauff Media, Inc

Do you or your sales team struggle to get the number of new customers your company needs? Do you feel like your facing an army of competitors who always manage to beat your prices? Does it seem like your prospects always want you to give them the world but aren’t willing to pay a fair price?

Do you think that if you dropped your prices just a little, all of those problems would go away and new business would start rolling in?

The good news is that you’re not alone. Lots of smart entrepreneurs have thought the same thing. The bad news is that they (and you) are dead wrong.

Today you’re going to learn that your prices are causing unimaginable damage to your business. More importantly, your going to learn why (it’s not the reason you think) and how to fix it right away. I’m even going to share some pricing mistakes I’ve made in our company, how it impacted us, and how we fixed it. That lesson alone worth it’s weight in gold, and you get to enjoy the benefits without the pain, hard work or lost profits we had to go through.

The race to the bottom is fast and painful

No matter how low you drop your prices, there will always be someone willing to sell for less. Many of those companies may not be around in a year or two, but there will be plenty of new companies lining up to take their place. And even if their quality and service is inferior to yours, to the customers who just shop for the lowest price, you’re just the same as everyone else.

To add insult to injury, the customers who chose you because of your price will jump ship as soon as someone new offers them even a slightly lower price.

Eventually, you’ll end up selling your products or services so cheaply that you’ll make little to no profit and your begin to hate your own business and resent your customers. Along the way, you’ll damage your company’s brand because people will associate it with cheap, inferior products and poor service.

A few years ago, I made this same mistake. I dropped our prices by 60% during a particularly rough patch in our company’s history. Did we make up for the loss of profit by an increase in volume?

Not even in the slightest.

In fact, our volume remained almost exactly the same. What changed was the type of client who contacted us.

Instead of getting calls from peoples who were interested in value, we were contacted by people who were only concerned about the price. Even though our prices were at rock-bottom, we were repeatedly asked for discounts and payment plans because the people who contacted us had the wrong mindset. To make matters worse, many of the clients we did work with during that time couldn’t afford to finish the projects they started.

You’re known by the company you keep

The success of your business depends on the type of customers you choose to work with. Another way to look at it is that the type of customers you turn down can have a greater impact than the ones you choose to work with.

When money is tight, it’s easy to fall into the trap of taking on any customer who is willing to spend money with you. Most entrepreneurs, including myself, have made that mistake.

The problem is that you then become know for working with that type of client and end up getting more of the same.

Imagine a real estate agent who sells only luxury waterfront property, but she has a slow couple of months, so she takes a listing for a small home in a bad neighborhood. She does everything right and sells it quickly at a fair price. Her client loves her so much that they refer their friends and family to her. Not being one to turn away business, she helps them too.

It’s admirable that she was willing to help these people, but now she doesn’t have the background that the seller of a beautiful and expensive waterfront home is looking for in a listing agent, so she’s stuck selling more homes in bad neighborhoods.

Success breeds success

My company has worked with small start ups, Fortune 500 companies and everything in between, and that’s taught me that usually, the higher up the food chain you go, the easier the customers are to work with and the more realistic their budgets and expectations are.

Many solo entrepreneurs are brilliant, dedicated and ambitious people, but they can often difficult to work with because they’re so used to doing everything on their own. Because of that,they’re often less willing to part with their money even though it would mean seeing better results faster than if they did the work on their own. They also like to have a lot of control over every tiny detail.

On the other hand, executives of larger companies who are comfortable delegating are more than happy to let you do your job your way while they focus on the end result. There is far less hand holding and your profits are usually higher.

That’s great, but my business is different

I’m sure you like to think of your business as a unique and beautiful snowflake, but it’s not.

Unless you’re selling a commodity, dropping your prices is a short term solution to a long term problem. You might get an increase in new business, but it’s not the type of business you want, and your profits will suffer.

The choice is yours. You can either turn a profit while you enjoy working with reasonable clients who have realistic budgets and expectations, or you can work at a loss while you’re miserable working with unreasonable clients who are simply looking for the absolute lowest price.

What’s the solution?

The difference is whether you choose to focus on the value that you’re bringing to the table, or on the price.

When we dropped our prices in response to a slow economy, we began attracting the wrong type of prospect. So the obvious solution was to raise our prices. In fact, we raised them even higher than they started off at.

To most people, it probably seems counter intuitive. How can the solution to a slow period be to raise your prices? That can’t work, can it?

Indeed. It can, and it did. And it will work for you too, if you do it right.

That’s not to say it wasn’t “keep you up all night” scary. It was, and initially, I fought the natural urge to go back.

But instead, I stuck with it and focused on the value that we provided. We spent more time qualifying our prospects – we were interviewing them just as much as they were interviewing us. And since our profit margins were higher (though still very reasonable) it allowed us to only work with the clients who were the best fit and turn the rest down. As a result, our clients got better results, we made a decent profit, and everyone was a lot happier working together.

Are you ready to make that sort of dramatic change in your business?

Grab a note pad and make a list of all the benefits you bring to the table, then raise your prices by 50% or even 100%.

You’ll still be reaching the same number of people with your marketing dollars, but their perception of your company will change, so the type of people who you speak to will be drastically different. They will be more concerned with the value and the outcome they’ll receive from working with you instead of just your price.

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