Pricing Red Flags

As a small business owner, you might fall into the trap of three common pricing mistakes in your efforts to attract or retain clients. Unfortunately, the outcome of such actions can lead to losing clients instead. By listening to this episode, you can gain insights on these three pricing errors and learn how to avoid them effectively.

Here are a few insights you’ll hear in today’s show…

  • Red Flag #1 - Pricing based on cost and not on the value you offer - How to avoid this red flag?
  • Red Flag #2 - Pricing your services too low - What wrong signals do you give to clients when pricing is too low?
  • Red Flag # 3 - Not adjusting your pricing accordingly - Why is it important to review your pricing regularly?

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 As a small business owner, we all want to grow our business and of course become more profitable. One of the key factors that can help us achieve this is our pricing strategy. However, it's not as simple as just setting our prices and hoping for the best. There are several red flags to watch out for when it comes to your pricing. In this episode of the Financial and Lifestyle Freedom Podcast, we are going to explore three red flags that small business owners should be aware of.

And welcome to the Financial and Lifestyle Freedom Podcast with me Annette Ferguson. For those of you that don't know me, I am a chartered accountant, certified Profit First professional and small business growth strategist. And fundamentally, we help business owners take home lots more money from their business for them and their families to enjoy, through a mixture of accounting, profitability and tax management strategies.

The Red Flags of Pricing


Red Flag  #1 - Pricing based on cost and not on the value you offer - How to avoid this red flag?

So many small business owners make the mistake of pricing their services based on cost, rather than the value they provide to their customers and clients. This approach can lead to a number of problems, including leaving money on the table, attracting price sensitive clients and undervaluing your expertise. 

To avoid this red flag you need to focus on the value your services provide to your clients. Ask yourself what problems do you solve for your clients? How do your services help them achieve their goals and once you understand the value you provide, you can price your services accordingly.

For example, let's say you're a business coach, your coaching services help your clients achieve their goals, increase their revenues and grow their business hopefully. And instead of pricing your services based on the number of hours you work or the costs of your overheads, you can price your services based on the value you provide.

You could charge a percentage of the revenue your clients generate as a result of your coaching services or a fixed fee that reflects the value your clients actually receive. Of course, in setting your pricing, you do need to make sure that the level of price that you set based on value does cover your costs. But that's an afterwards calculation rather than being at the forefront of your pricing decision.


Red Flag #2 - Pricing your services too low - What wrong signals do you give to clients when pricing is too low?


Another red flag to watch out for is pricing your services too low. Whilst it may seem counterintuitive, setting your prices too low can actually harm your business in the long run. When you price your services too low, you risk attracting price sensitive clients who may not be the right fit for your business.

These clients may be more demanding, less loyal and more likely to churn. In addition, pricing your services too low can send the wrong message about the quality of your services. Customers may assume that your services are low quality or that you lack confidence in your expertise.

To avoid this red flag you need to understand again the value that you provide to your customers. See Red flag number one and the price of your services accordingly. You should also research your competition to make sure your prices are vaguely in line with industry standards.

Of course, do not just price based on exactly what your competition is pricing because you have no idea what their goals are, what their costs are, what their profitability or their take home is, but it's worth just keeping a side eye on it. And finally, you should test your pricing strategy and adjust as necessary based on client feedback and your own business's goals.


Red Flag # 3 - Not adjusting your pricing accordingly - Why is it important to review your pricing regularly?


Another red flag is that not adjusting your pricing over time, your pricing strategy should not be set in stone. It should be flexible and adaptable to changes in your business and your industry as well as the wider economy. 

For example, if your costs increased due to inflation or higher home overheads, for example, you might need to adjust your prices to maintain your profit margins. Similarly, if you introduce new services or products, you may need to adjust your pricing to reflect the value of these offerings. To avoid this red flag, you should regularly review your pricing strategy and make adjustments as necessary. 

Put it as a recurring entry into your calendar. So it comes up say, every quarter and you have that time set aside to actually review your pricing strategy. You should also keep an eye on industry trends and changes in client demand and adjust your strategy accordingly. And finally, you should communicate any price changes to your clients in a transparent and clear way and in plenty of time, so that they understand the value they are receiving and the reasons for any price increases.

Conclusion

Pricing is a crucial element of any small business strategy. However, it's important to avoid these three red flags, basing your pricing on cost rather than value, pricing your services too low and not adjusting your prices over time. Focus on the value you provide.

Thank you so much for tuning in today to the Financial and Lifestyle Freedom Podcast with me, Annette Ferguson. If you got value from today's podcast, I would love if you would do two things. First of all, subscribe in whichever podcast player you happen to be listening in today. And secondly, do please, please leave us a review as well again, in whichever podcast player you happen to be listening.

Reviews are the way that other incredible business owners find our podcasts and are also able to benefit from our content. So it would mean a huge amount to me. If you are able to do that. It should only take 30 seconds, and it would mean the world to me. Thank you again for tuning in. Until next time, we'll speak soon

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About the Author

Owner of Annette & Co. - Chartered Accountants & Certified Profit First Professionals. Helping online service-based entrepreneurs find clarity in their numbers, increase wealth and have more money in their pockets.

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