And your margins are too thin…
How do I know this? 25 years of experience and sitting through many negotiations, I have seen that companies don’t charge enough. Why? Because they don’t really understand why their customers buy and they don’t really understand the “value” their customers receive from the transaction. So, unless your plan is to be the low cost leader, being the cheapest deal around isn’t always a good thing. Why? Because it means you’re seen as a commodity, and commodities have no control over their price points. Also, giving in to pressure to be the cheapest will dilute the power of your brand. And of course, in the long run, the slim profit margins will start to affect your bottom line. So how do you avoid succumbing to unnecessary pricing pressure?
Understand Your Value in the Marketplace. Take a good look at your business and your products or services and really figure out why people do business with you. This is the most common issue I see with many clients. Most companies do not really understand why people buy and how they value their products/services. As a result, these companies price based on internal beliefs and, often incorrect, assumptions about their pricing power. Ask yourself, what do you bring to the table that is unique, and how can you leverage that to its full potential? If you understand this, you will be able to go to market with confidence and the ability to earn a fair margin for your product/service.
Know Your Real Cost. Understanding what it costs you to produce your products or offer your services is a key step in knowing the jumping off point for your pricing strategy.
Do Your Research. In addition to knowing your own value, it’s important to understand what the marketplace values and what price ranges the customer will expect.
Gather Consumer Data. Find out who is buying and how they’re buying, to help put you in the position to sell to the right clients or customers. Also, it is important to understand how consumers see you and what buckets they put you in when considering their options. Talk with your clients and potential clients. In initial meetings, it is beneficial to ask a great deal of questions to really understand a client’s needs and to understand why they are buying. I’ve heard it said many times, we have two ears and one mouth for a reason, so my suggestion is to ask questions and then listen.
Determining the right price for your products or services is crucial to success. It is important to stay current and have the information you need to make an informed decision. Specifically, I attend trade shows, read journals, buy from competitors, talk with colleagues and intentionally work to stay active in gathering market intelligence. Having a deep understanding of the marketplace, and the unique value you bring will give you the ability to price differently and set yourself apart from the competition. In the end, my bet is that your pricing is leaving money on the table and that you could gain crucial margin points simply by reevaluating your pricing strategy.