Two years ago, we ran an article in our Tax Tips blog about knowing when to cut your prices. As the economy continues to lag, this may be a long-standing problem for some business owners who are uncertain whether or not their current fee scale is appropriate. In a recent Entrepreneur.com article, Lisa Girard helps small business owners with this issue by noting “Five Signs It’s Time to Change Your Prices.”
1. Competitors are charging more for inferior products.
If you’re just starting your business, you may feel tempted to slash your prices in order to compete with other accounting firms. It’s important to remember that prospective clients are interested in quality as well as price, and if your competitors are charging more for inferior products and/or services, you may be undervaluing your own offerings.
2. Your storefront is covered with ‘sale’ signs.
We’ve all seen those furniture stores that are always running a sale. When that happens, prospective customers stop taking their pricing seriously, always expecting some type of ‘discount.’ If you find yourself continually running promotions, you may not need to rethink your pricing but rather your target market. Tim Smith, managing principal at Chicago consulting firm, Wiglaf Pricing, explains, “Businesses aren’t charities. They don’t have to attract every person that indicates a fleeting interest in their offering.” Instead he asks small-business owners to consider what motivates their target market and then determine pricing based on what those higher-quality clients would be willing to pay.
3. Your cash on hand takes a dive.
When you have less cash on hand, that usually means the difference between your costs and the price of your services is too close. You may need to increase your prices in order to cover your costs, including overhead. And as long as you make it clear that your price changes are the result of rising costs, it’s generally regarded without concern.
4. You rely on price cuts to close deals.
If you find yourself having to give new clients special promotions in order for them to retain your services, you may want to ask yourself two questions. First, do you need to change your pricing structure? And second, do you need to change your approach in order to better present your offerings so they appear more appealing and worth the charges?
5. Your business is attracting bargain hunters.
According to Per Sjofors, founder and CEO of Atenga Inc., “You get what you price for. …You price low and what happens is you’re going to attract the people willing to pay only the cheaper price.” Ultimately what this does is cheapens your services.
While the recession may be digging in its heels, that doesn’t necessarily mean you need to lower your prices. By looking at a few key indicators, you may ultimately determine that you’re undermining your business by underpricing your services.
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Let us know how you determine your pricing in our comments!
Girard, Lisa. “Five Signs It’s Time to Change Your Prices.” 17 August 2011 Entrepreneur.com