One of the key issues for many new businesses is setting prices. It can be a challenging exercise because it means striking a balance between charging enough for products or service to generate good margin while taking into consideration competitive and market dynamics.
For many entrepreneurs with no or modest track records, pricing can be an effective tool to win new customers. By offering attractive prices and excellent customer service, a company can offer a one-two punch so it can become viable or, as least, live to see another day.
If things work out well and business thrives, there may come a time to explore the idea of raising prices. This could be driven a variety of issues such as the fact your prices are below what competitors are charging, or there is a need to generate higher margins to take into account higher costs created by hiring more people or moving to more expensive office space.
Another factor – and one that is clearly a luxury to have – is raising prices to control and manage the amount of business coming in the door. If your products or services are top-notch and customers are exceedingly happy, too much business can be a nice but challenging problem to have.
Raising prices can have two consequences: it can re-position your company as a premier supplier that has earned the right to charge more, and it can act as a hurdle or barrier to customers who may not be as attractive compared to other clients.
Of course, a higher price tag can also make your products and services even more desirable even though it costs customers more money.
A friend of mine who runs a human relations company that helps companies identify and hire better employees, decided to dramatically raise his consulting fees at a time when he was building a new business. Rather than resist, customers accepted the higher prices. This, of course, is a problem most of us would be exceptionally fortunate to have.
For the rest of us, raising prices takes thought, stick handling and a determination to ask for more money even though it might mean that some existing or potential customers find them unacceptable.
If, however, you are willing to accept the risks of higher prices because you believe your products or services warrant it, it makes sense to stick to your guns.
Special to The Globe and Mail
Mark Evans is a principal with ME Consulting, a content and social media strategic and tactical consultancy that creates and delivers ‘stories’ for companies looking to capture the attention of customers, bloggers, the media, business partners, employees and investors. Mark has worked with three start-ups – Blanketware, b5Media and PlanetEye – so he understands how they operate and what they need to do to be successful. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. Mark is also one of the co-organizers of the mesh, meshUniversity and meshmarketing conferences.
