We all know most businesses fail within their first five years.
There are many reasons, but one of the most consistent issues, especially for new business owners, is pricing. It’s a tricky area, with the huge temptation to underprice the market to get new business.
That strategy is a recipe for disaster. Undercharging is universally recognised as the biggest, most common and most dangerous mistake in business. One business adviser says very few people overcharge, but he estimates 90 percent undercharge.
The forces that push businesses into liquidation work both ways. The business owner might be producing a great product but doesn’t appreciate how good it is, so it’s sold cheaply. Chances are the customer also doesn’t appreciate its value because it’s cheap. Often, the higher your price the more you will be perceived as good at your job!
A Wellington entrepreneur once said: “Set your price to the point of resistance.” In other words, your customers will tell you if they think you’ve overshot your pricing. But more often than not, you’ll not be charging enough.
If you raise your prices by 10 percent, your income might even double because the extra charge is all profit. For example, sales of $500 provide a profit of $50, but the profit on sales of $550 is $100.
