When you start out as an independent tradesman a lot of things go through your mind. The topmost thought in your mind would be “how do I charge my customers for my product/service?”. The best thing to do is market research where you can compare your price with that of your competitors. After you estimate an approximate price, you start worrying if you are over-pricing. You want to offer a competitive price so you halve the price that you have decided on and that is a complete no-no.
It is natural to have an inherent fear of failure but it is one of the best practices to not sell yourself short. In fact, it is better to over-price than to under-quote. A higher price reflects the true value of your proposition. It shows the confidence that you have on your product/service and a good impression goes a long way in working out deals for you.
The risks of under-pricing
Most customers believe that ‘you get what you pay for’. When you quote a lower price, they will assume that you don’t have much to offer. It also projects the impression that you come cheap. As far as your business is concerned, under-pricing will kill your profit margins. It becomes difficult to sustain your business in the long run.
The strategy of pricing
Pricing is basically an inside game which you may not grasp at first. You need to compete on the value that you provide rather than on the prices that you provide. Customers are also totally emotional when it comes to monetary requirements. It is an understandable fear that you want to under-price initially. Some of the reasons for tradesman selling themselves short are:
- “I am new in this business so I should charge less until I gain credibility” There are two completely different aspects to be considered. One is your expertise in your line-of-work. The other, is the way you run your business. Just because you are new to management doesn’t mean you bring lesser value to the table. You are still expertly skilled and deliver quality service.
- “I don’t have enough expertise” Building an extensive list of clients is definitely important, but it doesn’t discount all the work that you have already done. Instead of trying to gain experience before raising your rates, it is better to price your services as per market rates and steadily increase your experience and clients simultaneously.
- “I am unsure of my capability to sustain” Starting out initially is a big risk. But if you are unsure of your capability, then you cannot expect your clients to trust you. You are the first person that needs convincing if you are to gain the trust of your clients.
Few pointers to price it right!
- Research the market value of your services accurately and compare each of them with the prices that you offer
- A value-based comparison is better than price-based comparison with your competitors
- When there is an economic downturn, your prices should be able to cover your costs
- The clients’ first perception of you is through your prices, so make sure that you don’t over-price. A high price can cast an impression of trying to take advantage of the client.