Are Your Products Undervalued?

When entrepreneurs start new businesses, one of the most common tactics they use to make sales is underpricing the competition. This is especially common for internet marketers – since there are potentially thousands of competitors in any given niche market, the temptation to compete on price can be quite compelling.

Although this strategy may generate short term sales, it can make running a business very difficult. The most obvious reason for this is that you will realize smaller profits from each sale, so you will have to sell more products or services to generate a sufficient income.

The less obvious problem with underpricing your products or services, though, is that it creates the perception that what you offer has less value than what your competitors offer. Customers are more likely to take advantage of businesspeople who offer what they perceive as “inferior” products. This means that you’ll likely be dealing with more refunds, “special requests”, and in the case of services, changes in scope.

All of these things add hours of administrative work to your day. Instead of spending your time working on growing your business, you’ll spend that time answering countless emails, listing to customer complaints, and issuing refunds.

I see this all the time in the field of copywriting. Copywriters often attract clients by competing on price. The larger the project, the more willing they are to offer discounted rates.

The result is unsurprising. Clients who buy content based on price are typically not well versed in marketing, so they aren’t quite sure of what they are looking for. Most copywriters would rather not think about the number of clients who completely change the scope and direction of a project after it’s well underway.

Also, the lower the price per page, the more demanding the clients tend to be. Copywriters get video conferencing requests nearly every day, even on weekends, to discuss the progress of a project. And since many copywriters work with clients that are based overseas, the conferences are scheduled during hours that are convenient for the clients, but not for the copywriters. After a few 3AM conferences, it’s pretty easy to feel like you’re being taken advantage of.

By properly pricing their services, instead of trying to compete on competition, copywriters can not only increase their profits dramatically; they can eliminate quite a few of the administrative headaches as well.

To give a more “real world” example… think about how many times you have sat in your car at a McDonalds drive-thru, watching the guy ahead of you argue with the cashier about his order. Maybe he was mad because the price of a Big Mac rocketed from $2.79 to $2.89. Perhaps he was upset because the manager wouldn’t allow burgers to be cooked medium-rare. Or, he could have been angry because he had to pay an additional 69 cents for extra bacon. Whatever the reason, it’s a scene that most of us have witnessed more than once.

Now, think about the last time you saw a similar scene in a five-star restaurant. Chances are, you haven’t. That’s because (among other things) the perception of value is much higher. Expensive restaurants hire gourmet chefs who know their stuff, and there’s little room for argument. You tell the waiter that everything was fantastic, pay the check, and go on about your way.

If you’re currently underpricing your products or services, it’s time to take a step back and look at what your time is really worth.

In a future post, we’ll take a look at premium pricing – a model that can significantly increase both your sales and your profits.