There's no shame in charging a premium for a unique product or outstanding service.
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Many businesses are barely scraping a living and many business owners work long hours and yet take home less than the minimum wage. Surely, you’re worth more than this. Here are a few things to remember:
You are in business to make money not to provide a charitable service.
The income that you generate in your own business allows you to do four main things:
1. Produce a quality product/service that you can be proud of
2. Cover your business costs and pay your debts on time
3. Generate a ‘salary’ for all the work done by the owner, comparable to that you would pay to an employee doing the same work
4. Pay a surplus to reflect the risk that you have taken in investing in the business
Your business should also give you a decent work-life balance, but it is often the business owner who works silly hours when there is insufficient income to cover the cost of the necessary manpower.
There is nothing wrong with being paid what you are worth.
Your products or services need to be worth the money you want to charge. Some businesses will need to up their game completely (which is not what this article is about) and others will just need to adjust their pricing policy to reflect their true value.
Don’t race to the bottom
If you sell an identical product or service to your competitors then, the only way that customers can differentiate is on price. One thing that is clear, is that you cannot compete on price against the big corporations that ‘pile them high and sell them cheap’.
These companies have purchasing power and economies of scale which you cannot hope to match. You can probably not compete with the small businesses based at home that have minimal overheads, or semi-retired folk monetising (or not!) their hobby.
Competitor businesses below the VAT threshold will appear cheaper when selling to the public.
Competing on price will only push prices and quality down in a race to the bottom. Find some way to differentiate yourself and stand out from your competition.
How long does it take you to do a fairly standard job of average quality? How much would you charge for that particular job?
Now consider, how much more it would take to provide a Wow! kind of job. How much could you charge? How much extra would it cost? How would people compare this to your competitors?
The same can apply to products if you can somehow differentiate yourself from your competition.
Quality commands a higher fee but do make sure that you fulfil your promises.
My favourite client reference was:
‘You are more expensive than [another local accountant] but much easier to deal with.’
I like it because it shows that we got our pricing right on this one and the client appreciated that we were giving value for money. We used this quote in our marketing for a long time.
Warning: If you increase your prices without giving value for money then you will end up losing business and reputation, so do not promise what you cannot fulfil.
Don’t be afraid to increase your fees if they are too low.
Many people worry that by putting up their prices they may lose business but let me give you an example.
If you sell 100 widgets for £1,000 each and an associated cost of £500 (so £500 profit) you might choose to increase your prices by 10 per cent to £1,100.
Now, instead of an income of £100,000 (100*£1,000) and profit of £50,000 (100*£500) you would have income of £110,000 (100*£1,100) and profit of £60,000 (100*£600).
If you lose 10 per cent of your clients through this 10 per cent price increase, you would have 90 clients paying £1,100 each and so an income of £99,000 and profit of £54,000. You have increased your profit by £4,000 while having more time to do a good job for fewer clients.
With this example you could afford to lose as much as 17 per cent of your customers and still make the same profit but you would be ahead on the processing costs because you are handling fewer transactions.
As an added bonus your most price sensitive customers are probably those who cause you the most trouble. You probably have your own example of where you have been squeezed on profit and the client was still not satisfied.
Overselling or underservicing?
Have you ever been sitting in a restaurant waiting for your meal and fancied another drink? This happened to me recently and the server was nowhere to be seen so I was left impatient, thirsty and noticing the lack of service and the long wait for food.
Although it may sometimes be irritating to be cross-sold extras, it was probably more infuriating to be without the drink that I wanted, which also led me to notice faults that I would otherwise have overlooked.
As well as losing out on over 20% extra sales, the restaurant had an unhappy customer who may well go elsewhere next time.
You don’t need a hard sell but do ensure that clients are aware of additional services that you think may be of use to them.
Increase all your fees annually
Your costs are probably going up each year so, you should have a standard inflationary increase written into any ongoing contracts. Make time to review your client list each year to ensure that everybody is receiving the services that they need and discuss additional (or surplus) services with your client.
Look at the products they are now buying from you and see if they still need these. Or, can you replace some of their older products with more modern equivalents which will provide greater value? If they trust you to provide great value then price will be less important.