One of the ways people get to know you is by the identity you project. Your company name, the way you present yourself, your business card and brochure, where you work, and other ways you conduct your business create an image that gives your customers information about you.
Pricing is a part of your image, too. Many entrepreneurs make the mistake of underpricing. They believe that the only way to attract customers is to have the lowest possible price. But this attitude can damage your business.
First of all, when you underprice you won’t be adequately compensated for your time. You must be able to make enough money to pay your bills and grow your business, or you won’t be in business very long.
Ironically, underpricing can actually result in getting fewer customers, not more. Think about this from the customer’s perspective. Let’s say you are looking for someone to do a job for you. You contact five companies, and get prices of $4000, $2700, $2500, $2400, and $1000. Which one would you select?
Assuming that the quotes are all based on the same specifications, most people would immediately eliminate the $4000 quote as being way out of line; however, they would also be suspicious of the $1000 quote. Why is it so much less than the others? Do they use substandard materials? Are their workers less skilled? Will they do a poor job–if they do the job at all?
Price isn’t the only factor people consider when making a purchase. You might choose the $2700 quote because you decide the price is reasonable, and someone from the company called you back quickly. You get a good feeling from their responsiveness, and decide they may be worth a few dollars more than the lowest bidder.
Some markets are more price sensitive than others, and there is probably a price point you can’t exceed for your product or service. But coming in far below the “going rate” can be just as harmful to your business as overpricing.