I work a lot with start up companies, and many of these businesses have developed wonderful products or services and have spent a lot of time and money in the start up process. Yet when it comes time to set a price for the products or services, these businesses often go too high or low, which sets them up to fail before they are even out of the gate.
Some new business owners believe that if they set their price low, the business will come. Seems to make sense. You make something, you price it lower than the competition, the consumer sees that your price tag is cheaper and picks up your item instead of a similar one. Yet most of the time, setting your price considerably lower than the competition will fail, and may cost your business a lot of money in the process.
For one thing, a consumer will generally look at two similar products and compare not only the materials used but the prices as well. If the prices of two items are similar, just a dollar or so apart, the consumer may choose the lesser of the two to save a buck. If, however, the price of one is considerably lower than the price of another, chances are the consumer will wonder why, and figure that the higher priced item is actually better made, even if the two items are identical in most respects.
Also, if you do set your price considerably lower, chances are you are eating into profit. If these items begin to sell out and you haven’t priced them high enough to not only cover costs but to make a profit, you’ll have to eventually raise the price in order to cover costs. It’s never good to go up in price, and you certainly don’t want to lose a ton of money from the get go because you priced too low.
Those who set their prices too high are in for a big disappointment as well. I worked with one client who made a really nice product. She asked what I would pay for the product and I told her; her husband had said the same thing. She said that she had expected to place the cost of the price almost twice as high as what we said we would expect to pay for that item. I asked if she’d researched the prices of similar items and she said that she had, and the prices on those similar items were the prices that both her husband and I said the market would probably pay.
In the end, the client didn’t listen to us or to the rest of the market and she set her price not at what we thought, and not even at what she had first said she was thinking, but she went even higher by ten dollars, making the price of the item not twice as expensive as similar items but three times the cost! She spent money on a website, brochures, business cards, and other marketing materials. She created a ton of these items in hopes that they would sell. She marketed. She failed. Why? The price she set was too high for the item.
When I asked why she went with the price that she did, she said that while other items were priced much lower she felt that hers were better made and that she couldn’t lower the price or the time that she spent creating these items would not pay off. My advice to you: If you are making something and you have to set the price three times of what similar items cost just to cover the time that you spend designing, don’t continue. Either find someone who can make that item more cheaply or find a new idea.
If you will be pricing an item or service anytime soon, do your research. You don’t want to spend time and money on a business start up only to fail because you have either priced too low or too high.
Have a great Monday, moms!