Pricing Mistakes to Avoid When Setting Prices as a New Business

You are a new business owner. You find yourself busy every day. You have a lot of customers, and you are always selling out. Yet, at the end of every  month, you don't know what happened to all the money you "made?"

There may be a problem with your pricing.

The price you place on your goods or services will impact your business. But pricing can be a tricky thing to figure out.

Most new businesses underprice their goods and services because of these mistakes.

1. Pricing Based on Your Previous Job

As a new entrepreneur, leaving a job or hoping to make your business your principal source of income one day, you may have made this mistake.

You probably looked at what you were making in your previous job. Then crunched the numbers and broke them down. You decided to charge customers a similar price to ensure you can keep the same standard of living.

The problem with doing this is that you are valuing yourself based on what someone else told you you were worth. You are not assigning value based on the value you bring to your customers.

An example of how you did this is by saying you were a computer technician working for a company and making $20 an hour. After crunching the numbers, you decide that since you are now the boss, and can charge a little more.

When you open your business, you charge $25 an hour.

You may not realize that the services you are providing are worth a lot more than that.

If you contributed $20 of value per hour to your previous employer, they wouldn't be paying you $20.

Because, like your new business, they also need to make a profit.

So don't value yourself based on your previous employment. Instead, figure out what value you bring to your customers. Start from there.

2. Not Looking at the Business Holistically

Looking at the entire picture of your business is vital when setting prices. You can't just look at the money coming in and going out. Although this is important for Cash Flow (See. Cash Flow Blog Post Here), you need to consider all the different parts of your business.

You should remember the resources you may not need to pay for yet. These can include resources such as time, social media marketing, and others.

It's essential to take depreciation, taxes, owner's pay, and debt into consideration. These are not line items you may be seeing in your cash flow or income statement every month, especially if you are just getting started.

But taking them into account will help you to prepare for the future and things like tax season and replacing new equipment.

3. Not thinking about Future Price Increase

As a new business, getting your first customers and developing trust can push you to start with a lower price than you hope to have in the future.

Before you set your pricing, think about the price you hope to be charging in the future.

Reflect on the price increases it will take to get you from your current price to your desired future price. You don't want to have too big of a gap as it would mean a longer time to get there or ridiculous price increases.

Imagine starting at $10 and hoping to be charging $50 in a year. Ridiculous price hikes would be needed right?

4. External Reactive Pricing

If you are in an industry with multiple competitors, you may feel tempted to set prices based on what others in the industry are charging.

In your mind, this will make your pricing more acceptable to customers who will see similar pricing around.

While looking at the market and pricing in your industry is important, it should not be the only determinant of your pricing.

If your service or product is of superior quality or you have something that sets you apart, don't be afraid to include that in your pricing.

5. Internal Reactive Pricing

This pricing mistake is a difficult one to discuss since it focuses a lot on our internal self-talk.

If the price in your industry is $30, but you somehow manage to convince yourself that you aren't worth that, you end up undervaluing your service.

This comes from our inner critic and can be very destructive to our pricing strategy, so be aware of it.

Have you been guilty of one of these pricing mistakes? Did this post help you to spot it and change it, share it with us below?

The Challenge

This week, evaluate your pricing. Figure out if you are falling into one or many of these pricing mistakes and change it.