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Entrepreneur Diaries: Choosing the right price
By Brett Smyth, founder and CEO of EngageME.
November 18, 2013 12:21 by kippreport
The life of an entrepreneur is one of immense uncertainty. Gone are the regular monthly paychecks, medical insurance, even the office cafeteria. Once the office space has been acquired, the corporate ID designed and the initial excitement of setting up a new venture has worn off, entrepreneurs are faced with the rather critical task of acquiring clients… fast.
With setup funds dwindling and panic swiftly rising, many of us make the mistake of undercharging for our services. Unsure of our place in the market and doubtful of our credibility, we tend to second-guess ourselves, diving in with ludicrously low figures to secure that signature on the dotted line. Because a sure thing is better than nothing, right? Wrong.
In addition to choosing to spend your days doing what you love, the reason you went into business in the first place was to make a profit – to build something long lasting and sustainable. So what kind of precedent are you setting by underpricing your services from the get-go? Sure it’s a good strategy when it comes to getting a few clients on board, but when and where do you draw the line?
The problem here is that if you’re selling your services based purely on the fact that you’re the cheapest on the block, then you’re setting yourself up for failure. Trust me, your potential clients can smell your desperation from a mile away and they’ll happily take advantage of your indecision: ‘What about a discount?’ ‘I can’t really pay for it this time around’. Sound familiar? You might feel like you’re the victim in this scenario, but the simple fact of the matter is that you’re asking for it.
For your business to succeed in the long term, you need to base your offering on value, rather than price. You want your clients to pay what you’re asking and still feel like they got a great bargain, thanks to the excellent service you delivered. That’s how you generate word-of-mouth publicity and organically build sustainable client relations.
Of course, it’s not always easy to price your services accurately. After all, without the necessary experience, how can you be sure of the true value of your counsel, expertise or time? Selling a product is one thing, selling a service is quite another.
So, how do you get the price right? How do you ensure that you’re offering a sufficiently enticing cost to clients, while, at the same time, making sure not to sell yourself short?
Here are some of the pricing principles we make sure to adhere to at EngageME:
Compete on value, not price: If you have to compete on price to win a client, chances are they won’t stay loyal to you if they come across someone else offering them a better bargain. We want to establish long-term relationships, so we try to set ourselves apart with personalised service and tailored solutions that generate real ROI for our partners.
Do your homework: When we launched EngageME in the UAE, we didn’t have any direct competitors to which we could compare ourselves. However, rather than just picking random figures out of thin air, we made sure we conducted extensive research, assessing other firms offering similar services (such as advertising agencies and HR companies), and benchmarking ourselves against similar companies in international markets. It’s an evolving process, but we’re at the point where we feel what we’re offering is fair to both our clients and us.
Cover your costs: This may seem like an obvious point, but it’s something many of us forget about in favour of securing that important client win. You’re not a charity organisation and as such you shouldn’t be in the business of giving your services away. So make sure to track all your costs – no matter how small – and ensure that what you’re asking more than covers them.
Don’t rush: Typically, when a client wants a quote, they want it yesterday. Smart clients know that if they rush the process, they’re likely to get a lower price, as you’re forced to make hasty, unconsidered decisions. So slow down, breathe and take the necessary time to consider all facets of your proposal, ensuring that all services you’re going to be providing are accounted for and fairly priced.
Only give discount as a reward: In the world of business, everybody wants a discount and it can be very tempting to offer reduced prices as a means of ‘getting your foot in the door’. However, rather than handing concessions out like candy on Halloween (thereby creating the impression that your regular prices are far too high), why not use discounts as means to incentivise repeat business? By rewarding loyal clients, as well as those who have referred additional business to you, you’ll create long-standing, profitable relationships, rather than simply scoring cheap once-off wins.
Don’t be afraid to say no: It’s the scariest word any entrepreneur can say, but it’s about time that you make ‘no’ a part of your entrepreneurial lexicon. If you’ve done your homework and know your prices are fair, you don’t need to worry about turning down those clients who are obviously trying to take you for a ride. We’ve used this word a few times in the past couple of months, only to have the clients in question call us back a few weeks later re-requesting our services. By turning down potential business, you not only demonstrate the fact that you’re doing well, but also show that you take yourself and your offering seriously.
At the end of the day, you owe it to yourself and your business to be unwavering when it comes to your pricing strategy. It might seem like a luxury you can ill afford in the early stages, but it could make the difference between long-term success and failure. It’s something worth thinking about…