The perils of underpricing products and services

Know the costs

As a business owner, you’ve probably had encounters with price-sensitive customers. There are plenty of them out there, and they can prompt you to second-guess your pricing strategy. I understand that it’s sometimes difficult to know how much to charge for your products and services. After all, you don’t want to price yourself out of the market and send prospects running to your competition.

But as detrimental to business as having prices considered too high might be, there’s something potentially far worse — underpricing your products and services.

The perils of underpricing

While “overpricing” your products and services might put you at risk of losing a sale, underpricing can be equally, if not more, devastating to your business. Here’s how:

Underpricing gives you no wiggle room to negotiate.

When you quote your lowest possible price directly out of the gate, you have no room to make adjustments if your prospect wants to negotiate a better deal.

You have no bargaining power when you lowball your pricing.

 

Prospects will have the perception your product or service sub-par quality.

When you price your offerings too low, prospects who aren’t price sensitive might think, “Gee, that’s cheap. I’ll likely get what I pay for.” And so, you risk losing the deal because those customers might perceive your products and services as inferior.

If you have a bargain basement sort of aura about you, you’ll probably find it difficult to attract customers who put value ahead of a low price tag.

You won’t have time for quality customers.

Often, it seems the customers paying the lowest prices are those who demand the most attention. I’ve never quite figured out why that’s so, but other business owners have shared that same observation. If you’re spending a whole heap of time and effort on low-paying customers, you’ll diminish the amount of time and energy you have for finding and working with good quality clients who will pay you fairly and appreciate your work.

Of course, not all low-paying customers are bad news. Sometimes businesses grandfather loyal existing clients into old pricing schedules as an act of goodwill and appreciation. That’s nice, however, that too limits your ability to take on work at the rate you’re worth. Under those circumstances, you might consider revising your rates to your existing customers. That would allow you to continue serving them with the same care and attention — and enable you to grow your business’s bottom line.

You might eventually need an attitude adjustment.

If you constantly charge less than you know you’re worth, eventually it will lead to resentment and a poor outlook toward your work. Entrepreneurship is challenging enough without feeling like you’re underpaid and overworked. Charging too little can not only put a damper on your revenue potential, it can also dowse your enthusiasm for your business.

Think before you slash your rates

I realize sometimes it’s necessary to meet price-sensitive customers in the middle, but before you slash your prices consider how it could affect your business.

  • Will the low-paying customer distract you from giving your better-paying customers the time and attention they deserve?
  • Will the revenue from a low-paying customer in the short term be worth forfeiting the time you could instead spend on looking for more ideal customers who will sustain your business for the long term?
  • And finally, will lowering your rates zap your mojo and make you less motivated about working to achieve your business goals?

Remember, even though you might land the sale, underpricing your products and services comes at a cost.


Also published on Medium.

Image by: gareth1953 Cataract Creating Chaos via Visual Hunt / CC BY