Pricing is something that every business loses sleep over at one point or another. Setting a price is an important decision with serious ramifications. Set the price too high and you risk losing customers. Set the price too low and you could devalue your products and damage the bottom line.
In particular, when it comes to quoting prices through proposals, there’s a lot to think about. How you convey pricing in a proposal format can ultimately determine whether or not you’re successful. Are you getting the price wrong?
4 Side Effects of Poor Pricing
“Pricing is as important as any business decision, but frequently it is treated as if it were no decision at all,” serial entrepreneur Jay Goltz explains. “Business owners just keep doing whatever they have always done, for better or worse. They do this because they fear they will — as they’ve been told a thousand times — price themselves out of the market.”
Are you still doing what you’ve always done, just because you don’t want to rock the boat? Well, be very careful. It’s entirely possible that the prices you’re quoting new prospects aren’t within the optimal range. If that’s true, you’re probably experiencing one or more of the following problems:
1. Hurts the Bottom Line
One of the most visible side effects of poor pricing is an impacted bottom line. Whether you go too high or too low, it’s likely that you’ll feel some sort of influence. High pricing alienates a large percentage of your prospects and drags sales down, whereas low pricing erodes your profits and stifles revenue. Regardless of which end of the spectrum you’re on, poor pricing can have a negative impact on your bottom line.
2. Damages Your Reputation
Let’s pretend you’re a customer and you walk into an auto repair shop because you notice that your vehicle’s air conditioning isn’t as cold as it should be. You ask them to take a look and diagnose the problem. Sure enough, they tell you there’s an issue and quote you $700 to get your air conditioning back to new.
Because $700 is a lot to spend on repairing your car’s AC, you decide to visit two other repair shops for quotes. One shop quotes you at $150 and the other says they’ll repair it for $175. Not only are you going to choose one of these lower priced quotes, but you probably have a pretty poor view of the first auto repair shop you visited. Either they tried to rip you off by charging you almost five-times the appropriate amount, or they’re totally inadequate at what they do and misdiagnosed the problem.
This is one of the biggest problems with poor pricing. Whether it’s purposeful or unintentional, quoting a prospect a ridiculous figure damages your reputation with them. Not only that – they’re likely to tell others about your pricing and you may end up losing additional business in the future.
3. Offends Prospects
The third problem with incorrect pricing is closely related to the second problem. When you give a prospect a price that they know isn’t in line with what the current market demands, they may actually take offense. You’re essentially telling them that you don’t believe they’re intelligent enough to know whether or not the price is right. In the end, this can erode your business relationships and even hurt existing client relationships.
4. Slows Down the Supply Chain
Depending on the industry and business you’re in, poor pricing may slow down the supply chain. When your pricing becomes too high or low for the marketplace, you’re going to see a change in demand. Regardless of whether this variation is positive or negative, you’ll be forced to adjust what’s happening at each stage of the supply chain.
Ultimately, poor pricing will lead to huge fluctuations in demand, which kills consistency and frustrates everyone involved. So, not only are you damaging your reputation with customers, but you may also be creating friction between partners in your supply chain. The long-term effects can be costly in more ways than one.
Avoid These Common Pricing Mistakes
In order to avoid the four common problems associated with poor pricing, you have to make sure you avoid pricing mistakes altogether. Here are a few tips to keep you in line:
Setting price based on cost. Sometimes it can feel natural to set prices based on cost, but this is a huge mistake. Price should always be based on the value you’re presenting to customers. This is the only way to establish long-term profitability.
Putting off changes out of fear. It’s fairly common for businesses to get used to their pricing and fail to make changes because they fear customers’ reactions. While some customers will be upset, you’ll be surprised to learn that most will be fine. If you couple price changes with appropriate consumer education, you’ll discover that customers are actually quite accustomed to pricing fluctuations.
Giving everyone the same price. It may seem fair at first, but you can’t afford to give every prospect the same price. You need to carefully segment your customers. Everyone has different needs and perceptions of your company. Remember, pricing matches value – so you should align your quotes with each prospect’s perceived value of your product.
Simply guessing. In the early days of business, it’s not uncommon for startups to simply guess. These guesses are often based on other similar products and services in the marketplace and the cost of production. While this may give you a decent “ballpark range,” it’s a pretty superficial foundation and will end up hurting you.
Setting prices is not something to be taken lightly. While there’s always the temptation to make these mistakes, it’s imperative that you surround yourself with the right tools and resources in order to avoid blunders.
Contact iQuoteXpress Today
At iQuoteXpress, we believe few things are as important to a growing business as consistency. If you want to build a steady and reliable client onboarding process, then you need the ability to develop high returning proposals and accurate quotes every time, without exception. With our CPQ solution, you can reduce proposal time by 50 to 75 percent, increase quote accuracy, and close more leads. What are you waiting for?