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The High Cost of Cheap

How to tell whether your prices are too cheap

cheap can be bad for business clients and your health small business startup training course will help with your breakevenDETERMINING YOUR PRICES, and whether you’re selling yourself too cheap, is a critical element in the success of your business, and in your own success as well.

Our EzyStartUp Course covers setting prices in some detail as there are many factors you need to consider and include in your prices to ensure you’re not just competitive — but that you’re also drawing a living wage.

There’s a theory that low prices attract more clients and that, in doing so, you’ll be able to earn more than if you had higher prices and only a few customers. This model does work, but it’s usually only in relation to big supermarkets or chain department stores. Take, for example, Woolies and Coles each trying to outdo each other with the cheapest bread and milk — and more recently, Bunnings and Masters who’ve gone head-to-head over the price of hardware items like paint.

But smaller retailers have rarely been able to compete with big ones, and it’s largely the reason why there are fewer independently owned retail shops now than there were 30 or 40 years ago. And gradually this mentality has started to seep into other areas of business, including the area of professional services.

Reasons why setting your prices cheap doesn’t work

Even though cheap prices will generally bring you more clients, there’s good reasons why having a lot of clients paying you very little is bad for business. Here’s a couple:

1. Lots of clients paying very little means you’ll work like crazy

If you’re going to outdo your competitors with low rates, then you’ll need to employ staff or find other contractors willing to subcontract the work from you for even lower prices, otherwise you’ll find yourself working like a crazy person in order to make ends meet.

I know there’s that old saying which goes something like, “If you find a job you love, you’ll never work a day in your life,” but I also know that living in a capitalist society means having to pay for stuff, and unfortunately, very few banks accept bags of love as a mortgage repayment.

It doesn’t matter how much you love what you do, you need to ensure you’re remunerated fairly for it. You may choose to set your prices lower to get those first few clients but you need to adjust them later as you become more established.

You may choose to set your prices lower to get those first few clients but you need to adjust them later as you become more established.

2. Cheap Seems “Cheap”

Everyone loves a bargain, but there’s a difference between something that is well priced and something that is plain cheap. If your prices are drastically cheaper than your nearest competitor – and that includes other small businesses and sole traders – and you can’t justify why (“I don’t have the same overheads because I work from home”), then people are going to wonder why.

Cheap rates reek of one of three things:

  • you’re inexperienced
  • you’re not very good at your job
  • or your work is substandard, either because of one of the aforementioned reasons or because you simply don’t have the time/care/both.

None of those things are appealing to businesses looking to hire a contractor, and more often than not, most businesses will go with the slightly more expensive option.

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There are many things to consider when setting your prices, which is why we include it as a subject in our EzyStartUp Course. However, as a general rule of thumb, researching other businesses in your industry will help you to understand how much you can expect to earn, and should serve as a good starting off point for your business.


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Pricing: Are You Being a Con Artist Without Knowing It?

It doesn't pay to sneak around your pricing; stating it up front is a better way to go.
It doesn’t pay to sneak around your pricing; stating it up front is a better way to go.

A short while back we wrote a post about why your final price should include GST, and just recently we talked about how you should structure your prices, so we thought we would add to these and talk about whether you should make your prices freely available on your website.

The internet has changed the way we do many things. It’s changed the way we bank, communicate and work, but if there’s one thing it’s almost entirely revolutionised it’s the way we shop — particularly the way we shop for professional services.

Divulging Your Prices

With the internet at our fingertips — on our computers, smartphones and tablets — we can quickly search any business, any time we like. It’s the first thing most of us do before we pick up the phone to call that business, so it makes sense to provide as much information on your website to encourage people to actually make that call.

Yet, many businesses do not. The most common thing missing from a company’s website: the price. This isn’t uncommon in professional services sector. But it doesn’t mean it’s right, either.

There is not a single business that doesn’t have a basic price structure set out for each service they offer, whether they’re an accountant or a plumber — and, frankly, any business that doesn’t is not a very successful one.

Subject to Change Pricing

Even if your prices are subject to change based on the additional services your clients require, put that basic price on your website and mention the fees for each additional service.

You’ll not only establish a point of difference between you and your competitors, but it also demonstrates transparency. Your potential customers know that they’re not going to get a different price depending on the time of day or day of the week they call you.

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At the end of the day, unless you’re hiding something, there is no reason why you shouldn’t put your prices on your website. We cover pricing in depth in our Small Business Management Course.