Recently on the Small Business Ideas forum, a discussion came up about pricing for a new business. I know this is a tough topic, and I’m hoping some of what we talked about will be helpful to those of you facing the same issue.
A new member of the forum was contemplating starting a company to do home cleaning. This member had experience in the business working for other large companies, but this would be their first foray into being in business solo.
The temptation, of course, was to price the new company’s services much lower than what the big companies in the area were charging. Several forum members (including me) thought this was a bad idea.
As forum member Ken said, the kind of customers you attract with a bargain-basement price are the ones who only shop price. He called them “lowballers.” As he pointed out, they’re the kind of customer who will leave you high and dry as soon as they find somebody else willing to work cheaper.
And there’s only so far you can go to cut your price in response. At some point, you can’t charge any less and still make a living. Besides, do you really want to find yourself working 12 to 15 hour days for minimum wage (or worse)?
I didn’t think so!
I mean, isn’t part of the point of starting your own business to be able to make a living at it?
But I hear ya. You need to offer something to compete against the “big boys.” After all, they’ve got better name recognition, a bigger advertising budget, more resources. How can you compete without offering a lower price?
- Do them one better
Figure out what you can do better than the big guys. For intance, you can offer the personal attention of the company owner — there are customers who will appreciate being able to deal directly with the “big boss” instead of a low-level employee of a faceless corporation.
There are customers who will pay extra for this kind of personal, high-level service. These are the kinds of customers you want, not the lowballers.
So sell the benefits of what you have to offer.
- Go the extra mile
Offer extra services that the big guys don’t. For instance, in the case of the house cleaning service, they could also offer vacation house-sitting, where they stop by your house every day, turn on and off some lights, water your plants, bring in the mail and newspaper and generally give your house that “lived-in” look.
If you don’t want to do this kind of service yourself, maybe you could partner with another service provider who provides the kind of service you’d like to add-on. For instance, the house cleaner could partner with a pet-sitter to have them take care of the daily visits for on-vacation customers. The house cleaner bills the customers and pays the pet-sitter as a subcontractor.
The pet-sitter gets the benefit of additional customers without having to spend time recruiting them. The customers will appreciate being able to deal with a company they already know and trust. The house cleaner makes additional profit without having to do any extra work. A real win-win-win situation!
So put your thinking cap on. For the house cleaner, some other ideas I had: exterior power washing, landscaping, auto detailing, carpet & upholstery cleaning, even dry cleaning pick up and delivery. What other services could you offer? Who could you partner with?
- Make your customers earn a discount
Offer a discount rate to any customer who refers someone else. For example, the house cleaner could offer a one-time discount or a free house cleaning to existing cutomers for every referral as long as the person they referred signed a contract for some minimum amount of time (say, six months).
This is a variation on the Internet idea of affiliate marketing. They send you a customer and they earn a reward. It’s a way of rewarding your most enthusiastic customers.
Another idea is to discount your rates the longer the contract term, or offering “loyalty cards” where you mark off every time they make a purchase from you, to eventually earn discounted or free services. This way you reward your most loyal customers.
These are the kind of “discounts” that can end up making you more money — and that’s the best kind of discount!
- Put time on your side
If you still want to offer a lower price to attract your first customers, offer it as a limited-time “introductory special.” For the house cleaner, this could be simply giving a discount rate on the first cleaning, with normal rates to apply thereafter, or perhaps offering a discount to the first however many customers who sign up.
This way you don’t have to give everybody the discount, and you avoid the problem of your prices being permanently set too low. It can also be an incentive for new customers to sign up early, giving your business a jump start.
The point is, the one thing you don’t want to do is set customer expectations low with bargain-basement prices, or you may never be able to climb out of the cellar. Justify the price with exceptional service, reward customer loyalty or offer a short-term “sale” to get a new business off the ground — but make sure your “regular” rates are near the market rate, lest you start your new business off behind the eight-ball.
You want loyal, enthusiastic customers who appreciate the value of what you offer. Lowballers are only looking for the cheapest price. The last thing you should to is cater to the lowballers. No more lowballers!
For more help with pricing, check out the free Make Your Price Sell downloadable course.
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