Freelancers and small business owners, particularly those new to their world, are frequently concerned about pricing their products and services too high. It may be, that at first, lower pricing works to get your first contracts or sell your first widgets, but beware of the negative effects that a low pricing strategy can have on your business.
New Biz Insecurities Can Lead to Low Pricing
When you are starting out as a freelancer, you may have to price lower to build a portfolio of work that can be used to attract new clients. When you are new small business, you may want offer some of your products or services at low prices to generate your first sales and interest in your company. The danger of starting this way is that you’ll continue this way. If your only strategy for winning new clients is low pricing, you are in trouble out of the gate.
Why? The obvious answer is that low pricing may undercut profit and cash flow which can lead to instability. What should be equally obvious is that whatever price you set, you have to ensure that your expenses are covered and that you pay yourself. No-brainer, right? Sometimes.
Why Freelancers are Tempted to Price Low
For freelancers, pricing is not as cut and dry as it is for businesses selling products. These businesses know the cost of the products they sell, their markup, and the cost of running the business. Because many freelancers work from home and have comparatively fewer monthly expenses, they more frequently set pricing based on the time it takes to complete the work. An example will help illustrate.
Consider the life of a freelance writer. There are few costs associated with producing written works. The main cost for freelance writers and other freelancers (or so some may believe) is the time it takes to deliver their services.
Their reasoning may go like this: If I work really fast, I can charge less and therefore get more clients. While estimating time is part of any freelance quote, it’s safer to price your services based on your expertise, the value you provide, the market value, and what your business needs to survive. Read How to Create an Accurate Estimate and Make Job Quotes Less Scary for a closer look at estimating time and quoting for work.
If, as a writer, you charge half of what other writers charge, you may get work, but that work will probably have a huge cost. If you consider revisions, talking to clients, admin, your monthly expenses (few as they may be), the impact on time, and the quality of your life, is the work worth it? While you are taking on these “low rate” jobs, you’ll have less time for higher paying work that could come your way.
There are other techniques you can use to win new clients that don’t rely on the “low, low, prices!” model.
Low Pricing as a Strategy Works Very Well…If You’re a Big-Box Store
The low-pricing model works great for Super-Duper Awesome Store because they buy and sell huge volumes of product. They can sell at discounted prices because their massively-bulk buying saves them money. They can turn around and sell at bargain prices because they can also sell gargantuan volumes.
Your small business or freelance business isn’t a big-box store. So what do you sell? You sell value.
Flareapps.com small business tip #068Low Pricing Shouldn’t Be Your Differentiator. Lead with Service Strengths and Value
If “value pricing” is your main selling point, you may experience a cascade of negative effects. You price low, so you attract clients looking for low prices. You may barely cover costs and you may not be able to increase cash flow, reinvest in your business, or have a rainy-day fund. When you finally do realize that a low-pricing model isn’t working for you, you’re stuck with clients who may bolt when you raise your rates.
Leading with the value your products and services offer emphasizes benefits not pricing. Successful salespeople know this. They realize that if they have to depend on price alone to make a sale, they are doomed. There is always someone selling at a lower price. If, however, they focus on the value the customer gets for price, they can make a sale and build a loyal clientele who are also the right clientele.
You can learn more about selling value at SalesGravy blog. While you may be hesitant to wear the salesperson’s hat, it’s a skill that any small business owner and freelancer would be wise to sharpen.
Flareapps.com small business tip #069Beware the Client Shopping for the Lowest Price
It’s natural for consumers to try and strike a balance between price and value when they are shopping for services or products. Beware the would-be client or customer that shops only based on price. A customer looking for the lowest price will not become a loyal customer. Next time they need to purchase similar products or services, they may go with you (if you keep your pricing low), but they are just as likely to purchase from a competitor that has lower prices. For freelancers, this kind of client comes with another downside. Ironically, the low-price hunters are often hypercritical, seem to chew up more time than other clients, and can be very demanding. If you do some reading of freelance blogs, you’ll find this to be a common truth experienced by many. Just ask Paul Andrew at Speckyboy Design Magazine.
Low Pricing May Leave a Negative Impression
Low pricing may leave clients and potential clients with a negative impression of your business, or even you. Low pricing may imply that: you are desperate for work, you are inexperienced, you have fewer skills than others, your product or service is inferior, you don’t respect yourself, and you’ll be easier to push around. This may sound overly negative, but these interpretations, unfair as they may be, do happen. If low pricing is the salient feature of your marketing pitch, be aware of the message you may be inadvertently telegraphing to potential clients.
High Price or Right Price?
Is what you consider a “high price” really that, or is it just your fear talking? Check prices for your industry and find out what a high price really is. Calculate your time and costs. Is it still high? Your “high price” may actually be the right price.
Is Pricing Really the Problem?
Whether you run a bricks-and-mortar business, a freelance business, or an online store, consider whether pricing is really the problem. It could be the visibility of your business (or lack thereof). Maybe your marketing needs a second look? The lack of business may be in the “how” of what you are selling rather than the “how much”.
If you rely on your business website to attract clients, and the website isn’t particularly visible in search engine results pages, it might be that you need to increase online marketing efforts, social media outreach, and real-world networking.
The takeaway is that if you can only get business by offering low prices, your business may have other problems.
Flareapps.com small business tip #070Use Lower Pricing Strategically, Not Globally
Where lower pricing can be helpful is within pricing models that include a discount when a client buys X amount of product or services, signs a contract to purchase long-term services, or buys service packages. Offering discounts based on past purchases, bundled products or services, or contract length is much different than global “low pricing”, however. Strategic discounts can influence a purchase decision and win longer term clients.
Flareapps.com small business tip #071Package Services Like They Are Products
Freelancers or small businesses offering services may find it advantageous to package services as products. Many services are intangible. When you package services levels, or bundle services to form distinct “products” you make services tangible, and, offer plans suitable to a broader range of potential clients.
Think like a web hosting company. When you see how web hosting plans are packaged, you’ll notice that frequently, three or four hosting plans are offered. In a “Bronze Hosting” package not only do you see what you get for the price, you see what you don’t get, and, you see that those services unavailable at the Bronze price are available for just few dollars more in the Silver package and so on.
The advantages are that your packages will attract customers who are thrift conscious and customers who are value conscious. The thrift conscious will see that you have plans that suit their budget. The value conscious will see that they could buy a cheaper plan, but for a just a bit more money they get a lot more value.
Read Making Your Services Easier to Sell, an excellent article about packaging services or processes as products.
About Flare Cloud Accounting
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