One of the most common mistakes made by business owners is in the area of pricing. Many entrepreneurs depend on lower prices to bring them more customers. And while there are businesses who have successfully implemented this strategy, the problem is that it’s a difficult position to maintain.
There’s always someone who will find a way to be cheaper, and more resources are necessary to serve the larger number of customers that you obtain.
So, if possible, the key is to compete on differentiation. Identify the qualities about your service or product that make you unlike any other, and focus on these qualities in your marketing message to support a higher price.
With a higher price, you may have fewer customers, but you can still be more profitable. For example, if you increase your price by 20% – and you don’t lose over 20% of your customers – you’ll make the same amount of money or more. And as an additional benefit, you’ll commit fewer resources to serve those customers. Isn’t that a nice, simple formula?
However, making a price decision without understanding its effect on the different aspects of your business could be detrimental. This is one reason why it’s important to keep up-to-date and accurate books. Work with your bookkeeper to help you to track the right metrics and make the best decisions.