No matter how long your business has been around, when it comes time to introduce a new product, you have to play one of the most distressing games of chance imaginable:
Setting a price.
On the one hand, it can feel like spinning that big wheel on The Price Is Right – you want to land on as high a number as you can without going TOO high, or you could bust. That feels risky.
On the other hand, your only other option is a LOT worse.
Because your only other option – and one that hobbles plenty of businesses before they can ever get off the ground – is to adopt a garage sale mentality.
The garage sale mentality kills businesses.
You know what it is – it’s when instead of pricing something for what you know it’s really worth, you set the price as low as you can and just hope for the best.
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Works great for the Members Only jacket collecting dust in the back of your closet. Not so much for the product on which you’ve spent time, money, and a lot of effort.
It’s easy to think that the lower your price, the more competitive you make yourself. But offering something at the price you think is actually fair – instead of just as low as you can go – is better for your business in more ways than one.
There are three big reasons why.
Setting your price too low devalues your product.
Yes, you can get great things at ridiculously low prices. For example, look at this thing – not even 11 bucks!
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Yes, please.
But that doesn’t mean people are motivated by price alone – and in fact, setting one that’s TOO low can devalue what you’re offering.
Price reflects your confidence in what you offer. Sure, everyone shops around for competitive prices – but ultimately, the quality and usefulness of what you’re selling is a much bigger factor than you may expect.
Undercutting your competition on price is a shortcut, but it’s one that undermines your own worth. Instead of asking yourself how low of a price you can squeak by with, ask yourself:
How can I add value to what I’m offering?
Am I communicating the value of what I’m offering effectively?
In what other ways can I differentiate myself from competitors?
These questions can be harder to answer, but over time, their payoffs – both figurative and literal – are a lot bigger.
One reason for that?
A price that’s too low inhibits your company’s growth.
It would be kind of silly to say that the freemium business model doesn’t work. Heck, in 2014, Kim Kardashian’s free-to-download mobile game made a cool $74 million.
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We had to delete the Kim Kardashian game from Edgar’s phone, for productivity’s sake.
But whether you’re trying to squeak by on the lowest price possible or you find yourself offering more and more freebies, you’re working with limited bandwidth, and you should be using it on things that actually help you grow.
The time you spend on freebies – whether it’s creating, marketing, or offering support for them – is time you’re NOT spending on developing a better product and a more profitable business. And focusing on growing without considering financial sustainability has dire consequences.
Again, freebies and even freemium products can be incredibly useful – if and when you have the bandwidth. (After all, we spend a LOT of time on things like free webinars, downloads, and guides.) But if it’s taking away too much of the time you need to make your business, you know, a business, then you have to reevaluate its worth.
Especially because of this next thing:
You need to know that you’re creating something people are actually willing to buy.
Creating a free product is completely different from creating a paid one.
Doesn’t matter if it’s a course, an ebook, software, whatever – your audience’s expectations vary by price, and when your price is too low, those expectations are dangerously easy to meet.
Plenty of things are worth no money and no risk, but is what you offer worth paying for?
If you’re giving too much away, or offering it at too low a price, this is a tough question to answer. Of course it’s worth having for the cost of nothing, but you can’t build a business on that.
The money you’re making – or NOT making – is your best indication of whether you’re on the right track. Maybe you find that the thing you’re offering is way more enticing than you’d anticipated. Maybe you find that your value proposition needs work. But you’re not going to find out anything you can use to become more profitable if you’re setting the bar too low from the start.
Figuring out the right price is still super tricky.
Trying to land on the right price can take a little trial and error – and figuring out where to start might still feel as haphazard as spinning that giant Price Is Right wheel.
The important thing to keep in mind when you do, though, is to not sell yourself short – and to make sure that the successes you plan for are the kind that will improve your business in the long term.
(header image: https://www.flickr.com/photos/bransonmo/9465791679)
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