Small Business Pricing Training: How to Avoid Common Pricing Mistakes

It can be hard to find reliable small business pricing training out there.  That’s why we’re presenting top pricing tips from small business experts from across the nation.

Today’s pricing training comes from Gary Stokes, a consultant with ActionCOACH, and small business writer:

Pricing decisions are some of the toughest decisions to make for business owners.  As a result, many business owners make pricing decisions that end up costing them money, in some cases very large sums of money.  When you are considering your prices, avoid these common mistakes:

  1. Mistake #1 – Not Knowing Your Numbers: You simply cannot make pricing decisions by the seat of your pants and expect to be as profitable as you should be.  You have to know your true costs, including your variable costs (Cost of Goods Sold), as well as the amount of overhead you have to cover, before you can make a good pricing decision.

  2. Mistake #2 – Not Knowing Your Competitors’ Numbers: Doesn’t it make sense to understand your competitive position in the market place?  We often assume that our competitors are undercutting us on price when it turns out that the opposite is true. A little mystery shopping goes a long way.

  3. Mistake #3 – Not Understanding the Difference Between Markup and Margin: I know of business owners who have used a markup of 50% for years  and end up scratching their heads trying to figure out why the gross margin is only 33% on their income statement.  If you don’t know the difference between the two, get someone to explain it to you and start to price appropriately.

  4. Mistake #4 – Not Having Clearly Defined Profit and Profitability Goals: This is a very common error.  How can you make a suitable profit if you don’t know what it is?  How can you set your prices without having clarity about your desired profitability? You must take some time to decide on your profit goals, and then set your prices accordingly.

  5. Mistake #5 – Competing with Price: Unless you are truly the low cost provider and can sustain a low cost advantage forever, this is a losing proposition.  How long would it take a competitor to match you on price?  What kind of clients do you attract when you use price as your only competitive weapon?

  6. Mistake #6 – Not Selling the Value You Deliver: This needs to be the focus of your sales and marketing efforts.  Establish your target clients and then attract them with your unique value. Not doing this leads you inevitably back to Mistake #5.

  7. Mistake #7 – Being Afraid to Increase Your Prices: Many business owners will go long stretches, in some cases even years, without increasing their prices.  These same owners will have seen their own suppliers increase prices, will have given raises to their employees, and dealt with higher costs for utilities, energy, etc.  Even relatively low inflation can eat up your profits very quickly if your prices remain stagnant.

If you have fallen into this trap, go through the above list, and after acting on those items, determine the effect of increasing your prices on your bottom line.  The biggest fear is losing clients and sales volume.  Doing the analysis will show you that you can increase your prices, actually sustain some lost volume, and still make more money!

Thanks for these great tips, Gary!  If you’d like to contact Gary directly, please see below:

Gary Stokes Owner and Certified Business Coach ActionCOACH ActionCoachGaryStokes.com

Don’t forget to check out our top tips on small business pricing training — great advice you don’t want to miss!

Stay tuned for even more training from the pros on small business pricing!

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