Perilous Pricing

The top portion of a FrogDog work agreement. Spring 2013.

You can work yourself out of business.

Seems obvious, right? If what you do costs more or the same amount as what you charge, you will go under. Kaput.

And yet I see it all the time.

Charging customers less than cost is irresponsible to shareholders (often comprised of the business owner alone), employees, and societal economic health.

Why does this happen?

Get the Deal

The rationale: I need this revenue—or I want this client on my roster.

The reality: Revenue and "name brand" clients don’t mean much if the bottom line registers red. Even time costs money. If you can spend that time to generate profits or relax to gather energy for your next business foray, do so.

Please the Prospect

The rationale: If I pass, this prospect will think badly of me. He’s got connections. He’ll tell people I don’t accommodate—or that I’m too expensive.

The reality: Standing your ground for justifiable reasons makes prospects and clients respect you more than they will if you cave and damage your business—even if they don’t get what they want. And if they don’t respect sound decisions, do you really want to work with them?

Loss-lead

The rationale: Just get the prospect in the door. I’ll lose money at first, but my product or service will so impress them that they’ll pay full price next time.

The reality: Once someone acquires something for one price, he won’t pay more for the same product or service. He’ll go elsewhere for another loss-leader—just like you gave him.

Clueless

The rationale: The company’s leadership knows a great deal about its product or service—and it doesn’t know a thing about business.

The reality: Get educated. You don’t need a fancy degree. Find a mentor. Read up on fundamentals and best practices. Do so post-haste—before bad habits irretrievably damage your company.

Everyone in business has made the pricing mistake. The key to surviving it? Learning quickly.

My pricing mistakes stemmed from rationales one and three—even though I knew how to value my services thanks to fantastic mentors. I’m fortunate I caught the errors of my ways before I got too far down the perilous pricing path.

Have you made a pricing mistake? Why? What happened?