The Slippery Slope of Underpricing

Pricing.  What to charge.  Some days it seems nothing strikes more terror in the hearts of entrepreneurs and experts than trying to figure out what to charge for your services.

We’re not pricing widgets, after all.  We’re charging for services, our expertise, our insights and abilities.  Oh, and don’t forget that we’re also charging for the value and results clients get from that insight.  When fear and insecurity around how to price and what to charge takes the driver’s seat we forget the power of price.

The price we charge as business owners serves two primary purposes:

  • To ensure that your business profits so you can continue to stay in business and serve your customers
  • To communicate the value of the service to potential clients and customers

Yet, many small business owners find themselves on the slippery slope of underpricing.  They price based on comfort level, or pick an hourly rate they aren’t ashamed to say and use that to price their services.  Sometimes they look around to see what others are charging and use that as a baseline to set their own prices.

And they end up sliding down the slippery slope.

If you underprice your services and programs may not sell well.  Low price signals low value and when it comes to selling services, the last thing you want to activate is the skeptical mind.  When a customer hears a low price they begin to question the value.  They think ‘oh, it’s not going to help me the way I thought it would’ and they begin to doubt.

Underpricing also tends to attract price sensitive shoppers who typically expect a lot for a little.  This uneven value exchange sets up a dynamic where the client isn’t very committed to you, the work or the results and instead has placed much of the responsibility for results squarely on your shoulders.  Because they are price sensitive, even low investments feel big to them and so they want to eek every cent of value from what they’ve spent.  The problem for you, the solopreneur, is that you now have a low commitment, high demand client draining your time and energy.

Enter the resentment factor.  Your confidence in yourself starts to slip because low commitment clients don’t get results the way a high commitment client does.  They begin to complain—‘it isn’t working!  I need more help!”  and resentment creeps into the relationship.  You resent the demands on your time and energy and they resent the fact that they aren’t getting what they want.  This is a lose-lose situation.

Your business suffers because you can’t cover the costs and aren’t profitable.  With low energy and high frustration you are not at your best.

So how do you avoid the slippery slope?

First, by internalizing the idea that your price should reflect the value your customers will get –not only from you, but by engaging and committing to the process.  As an expertise business, you work in collaboration with your clients.  If they aren’t committed, the results can’t be achieved. The right price-point attracts the committed clients and weeds out the bargain hunters and low motivation clients.

Secondly, you have to know your numbers.  Do you know your costs of doing business?  And does your hourly billable rate supports your ability to cover costs while making a profit?  Do you price your programs and services with this data firmly in mind?  Do you know your breakeven numbers and your profit numbers for every service?

Lastly, learn the art of positioning what you do.  90% of Pricing is in the positioning.  You have to be able to clearly and confidently connect what you offer with what your client’s most want and value.  People will pay a premium to get what they want, but first they have to feel it’s possible and that you are the person who is uniquely suited to helping them.  Most people are willing to invest in quality service, personalized attention, proven processes and confident mentors. When you know how to showcase what you do in a way that conveys the full value of the experience and creates excitement, you get yourself off the slippery slope of undercharging and onto the path of a profitable business.

3 Responses to The Slippery Slope of Underpricing

  1. Jefri Franks says:

    Hi Shawn, great article on pricing – thank you so much. It’s hard to balance what to do for free (possible exposure to your audience) and what to charge for…… I actually have 2 websites – the first one I launched is: http://www.jefrifranks.com. Shifting away from grief, although, having lost my daughter to cancer – I will always have a passion for the work. It doesn’t sell well…also passionate about my new site – You In Bloom!

  2. Hi Shawn,

    You gave me some things to think about with this article. As I said to you yesterday (thank you SO MUCH for your input, by the way — it was very helpful!!), I want to keep my prices affordable for people, but now I’m reading this. Maybe it’s just that what I’m doing right now is positioned at the low end of the middle part of the marketing funnel right now. Something to consider, here. Thanks for writing about this.

  3. Donna says:

    Thank you so much, as a small business owner this is a slope I have tried to ice skate up more than once, much appreciated insights..

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