Pricing is an important aspect of every business. As a business owner, you need to ensure that your pricing is not too high that you drive away sales, or not too low that you’re not covering operating expenses or meeting your financial goals.
Accurately pricing your products and services can be tricky, but it is crucial to spend time getting it right to ensure your business’s long-term financial health. To help you ensure you’re not undercharging, here are some signs to look out for.
No one questions your quotes
Getting a lot of work sounds great for a business. But, if you’re rarely getting “no, thanks” from your potential clients, this could be a sign to rethink your pricing. If clients readily accept your quotations and charges without questions about the cost breakdowns or even asking for a discount or more flexible payment terms, it’s possible they are delighted they’re getting a good deal. Chances are your prices may be too low.
Your bills are stacking up
If the work is still coming in but you can’t seem to cover your expenses, that may be a sign that you are undercharging. There, of course, may be other factors that could challenge you to cover your expenses such as mismanagement of funds. But, if you’re confident that your books are well-managed and you keep track of your budget and expenses, but you’re still having cash flow issues, maybe the problem exists within your pricing strategy.
People are telling you your prices are low
Sometimes, clients come to you and they tell you you have the lowest prices. That’s not always a compliment, but an indication that you’re actually undercharging. It’s important that you’re also aware of how other businesses in your industry are charging to ensure your prices are competitive.
You haven’t raised your rates in 2 years
It’s a healthy practice for businesses to increase their prices each year. As the costs for input materials are rising, you need to make sure that your prices are still able to cover your production costs. Leave your prices flat for too long and you’re not keeping up with the market; make sure you review your fees annually.
You’re getting mistreated by clients
Your pricing also has an influence on how your clients perceive and treat you. If they think you’re charging too low, they might think they’re paying for cheap services. They don’t see your time as valuable, so they feel free to mess you around.
What to do if you’re undercharging?
If you feel you’re undercharging, perhaps do some research, maybe ask around, and find out where your competitors are pitching their rates. But remember, raising your prices cannot and should not be done overnight.
Review your expenses, input costs (including labour, freight expenses, etc.), and other operational costs and assess if your profit margin is reasonable to set the right price for your products or services. Take the time to also analyse the market to ensure you’re not charging too low as compared to your competitors.
Once the prices are set, you may now gradually increase your prices. You don’t have to increase your charges to all clients immediately. You can start with new clients first and assess if your new pricing is feasible. Remember, changes in pricing should be communicated clearly and properly to your clients so they can see the value in your time, products and/or services.
We know how challenging it can be to set the right pricing strategy for your business. If you need a hand, our specialist advisors are here to assist. Send us a message or give us a call at 07 3878 9181.