When you first start out in business, pricing can be a fluid concept. Most new business owners charge whatever price won’t risk the sale.
But your prices might not cover everything, so no matter how much you sell you’ll still be low on cash and could even go bankrupt.
You can’t fix this by selling more
It’s super hard to fix a “low prices” problem by selling more. Because each sale needs to cover (i.e. pay for) a lot of things.
If those sales aren’t covering all costs, then each sale loses you money. And making more sales that lose you money is a bad thing.
So it makes sense to make sure your prices cover everything they need to, rather than just trying to sell more to fix the problem.
Here is the list of what your prices need to cover
- Delivery: all costs of providing the service or product you sold. Without this, customers demand refunds.
- Marketing time/team/investment: attracting potential customers, warming them up, and inviting them to a sales page, sales call or other conversion event. Without this, it’s hard to make sales.
- Sales time/team: turning the right potential customers into actual customers. Without this, sales are more of a fluke than a probability.
- Admin time/team: keeping the business organised, answering enquiries, etc. Without this, your business is a mess.
- Management time/team: helping your team perform at their best. Without this, you’ll have a bunch of fires to fight yourself, and progress (if any) will either feel like you have an anchor attached or will often be “two steps forward, one step back”.
- Owner pay: at least market rate for the tasks you’re doing (more on that in another post). Without this, you’ll burn out and won’t be able to delegate.
- Growth projects: these usually require money and/or time. Without these, the business is much less likely to grow.
- Overheads: other expenses, e.g. accounting, bank fees, software, etc. Without this, your business might be shut down or impossible to run.
- Profit: used for building savings, paying down debt, investing in assets, a return for owners, etc. Without this, it’s really hard to achieve lasting success and stave off owner burnout.
Most people just think of #1 in the list above, and there’s usually something on this list most people don’t think of. I’ve done it too, so no judgement here! Let’s just do something about it.
Are you sacrificing something on the list?
Take a moment to think if there’s something (or multiple somethings) on this list that you feel like you can’t afford.
There’s a good chance that means that your prices are too low.
If that sounds like you, then have a read about how to set your prices. and remember that it’s OK if your customers flee a price rise.
Got a questions about this, or need some help? Just ask, I’m happy to help.