The Pricing Mistake You Won’t Recover From

by Dawn Martinello on July 13, 2011

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When I started my business in 2009, my first instinct was to offer a discount on my services to get my foot in the door. When someone was looking for a VA on Twitter, I forwarded them my pitch along with a discount coupon. I gained a lot of clients that way but not one of them is still with me today.

What made my “marketing” blunder even worse was that people weren’t even asking for the discount. I just happily offered to do my work for less than what I knew it was worth.

WHAT DOES DISCOUNTING SAY TO YOUR CLIENTS?

When you see a pair of $200 shoes you’ve been drooling over marked down 50%, does it make you wonder what  those shoes are really worth?  Even at $100, the store is making a profit so if you wait a few more days, will they go down to $75?  Hell, go for the gold and ask the manager for a deep discount and get them for $50.  Suddenly, those exclusive high-end shoes are nothing more than what you find at Payless Shoes.

THERE’S ALWAYS SOMEONE CHEAPER

If your main plan of attack is to always be the cheapest, start digging your grave now. There is always someone who can and will do the work cheaper. Creating brand loyalty will be impossible in a constant price competition.

Think about it: do you always buy the national brand in the grocery store if you can get the same quality and taste from the knock off brand that’s half the price? Is there any brand that you would ALWAYS buy no matter what?

COMPETE ON PRICE WITHOUT CUTTING YOUR THROAT

Yes, there is a way to compete without discounts. Yes, there is a way to say no to low pay.

You know when you see companies bundling products and services or giving you a free bonus with purchase? They’re adding value instead of discounting their offerings.

Is there a way that you can offer a freebie instead of a discount, something that gives real value to your client? A free e-book, a helpful worksheet or even a trial membership to your forum?

SO, HOW DO I PRICE MY SERVICE?

Your basic pricing structure is cost plus profit. But there’s much more that goes into it.

Like how many billable hours you’re able to work, what your salary is going to be, what kind of overhead you have, the taxes, fees and association membership you have to pay, and maybe most important, the “deliverables” of working with you. You know, what your client gains from working with you.

This services-pricing-worksheet will help you get started. :)

How do you price your services? What do you offer instead of discounts?

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{ 22 comments… read them below or add one }

1 Reuben Swartz November 4, 2011 at 10:24 am

Great tip for small business owners, especially those starting out. Our business is helping companies price better, and unfortunately, we see this mistake all the time. I encourage business owners, especially service providers, to think about how they can double their rates. That may be easier said than done, but some companies have been able to do it, and the simple act of thinking about it often lets them raise rates 20-30%.

Yes, you will lose some business– that’s the idea. You will lose your worst customers, who don’t really value what you provide. But you can make more money, working less, and get back to enjoying your work again. (See http://www.mimiran.com/pricing-strategy/pricing-battle-plan-for-services/ for a recent blog post on this topic.)

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2 The Mogul Mom (@TheMogulMom) (@TheMogulMom) August 13, 2011 at 1:40 pm

Do you offer a service to other #businesses? Here is how to price them right by TMM contributor @MondayMorningVA http://ow.ly/62iqO

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3 Bluestocking Ink (@bluestockingPR) July 24, 2011 at 12:29 pm

The Pricing Mistake You Won’t Recover From http://t.co/wD37z0q @heathALL

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4 Bernice Wood (@womanonajourney) July 18, 2011 at 7:15 pm

The pricing mistake you won’t recover from ~ http://ow.ly/5HoEc via @mogulmom

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5 lina July 17, 2011 at 2:09 pm

I downloaded the services-pricing worksheet , but I can’t utilize it. It is protected and read-only. May I have the password, so I can use the excel?

Thank you!

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6 Dawn Martinello July 20, 2011 at 12:56 pm

There’s no password protection on the form. There should be a button that you can click that says “enable editing” – click that and you’ll be set.

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7 lina July 21, 2011 at 9:07 pm

No, it’s not working. Do you mind emailing the worksheet to me? Thanks!

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8 Dawn Martinello July 25, 2011 at 9:06 am

Sure thing. Send me your email address: dawn@mondaymorningva.com

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9 Dawn Martinello July 14, 2011 at 7:41 am

Hi Lisa!

My same rules for services apply to products. The main take-away from the article is that if you discount anything you are devaluing it. There are definitely times where you can discount without doing (shall we say) damage.

Something wrong with the merchandise? A discount makes sense because the product isn’t worth the same amount anymore. Need to sell last year’s products that you won’t be carrying anymore, discount away. In these instances, it’s fairly clear that this is a one time discount that won’t be cropping up every few months. Once a client knows that a sale or discount is coming every few months, they will only buy when it’s on sale. Think about the grocery store again: most companies have rotating sales on their products – usually every 3 to 4 months, so if you stock up on what you’ll need to get through to that time, you’ll never pay full price on the product.

Psychotactics wrote a great article that may give you some great ideas on “discounts”. He describes situations like a company giving away a free massage, or buying one getting one free: http://www.psychotactics.com/blog/selling-godfather-offer/

Hopefully that will give you a good start, but feel free to brainstorm some ideas here with us!

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10 Marie Maglaque (@etincellestudio) July 14, 2011 at 2:02 am

Very interesting reading + bonus pricing worksheet by @TheMogulMom The Pricing Mistake You Won’t Recover From http://t.co/6z0zZvh

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11 Lisa Diamond July 14, 2011 at 1:28 am

Any insight to offer about pricing mistakes for companies selling product verses services? Recommendations on when and how to use discounting?

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12 SavvyRelations (@SavvyRelations) July 14, 2011 at 12:20 am

Great article for start-ups! RT @themogulmom: New! The Pricing Mistake You Won’t Recover From – … http://ht.ly/1dNnQB

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13 The Mogul Mom (@TheMogulMom) (@TheMogulMom) July 13, 2011 at 8:35 pm

New! The Pricing Mistake You Won’t Recover From – When I started my business in 2009, my first instinct was to offer… http://ht.ly/1dNnQB

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14 Karen Smith (@4dollsintime) July 13, 2011 at 7:46 pm

The Pricing Mistake You Won’t Recover From http://t.co/HPt0w6v Great article on pricing!

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15 Heather Allard July 13, 2011 at 3:19 pm

Dawn,

I used to make this mistake when I first started consulting, too. Oy. :)

Thanks for a great post and a super helpful pricing worksheet!

Heather

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16 Dawn Martinello July 13, 2011 at 3:28 pm

I know a lot of people do it Heather. Standing strong behind the rates you’ve set takes practice sometimes!

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17 Carey Suante - Transcriptionist July 13, 2011 at 2:35 pm

Oops! I’ve been making this mistake all along…!

Thanks for the post.

I thought discounting my price would be the least I can do to get their attention but I guess not.

Adding value should be how I give discount from now on!

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18 Dawn Martinello July 13, 2011 at 3:21 pm

Carey, there are still times when offering a discount is a good move, but you definitely need to ensure you’re not offering it all the time.

When I used to sell Avon, I thought people were crazy for buying any product full price because it was ALWAYS going to be on sale within a few campaigns. The problem is that people expect the sale and it sends the signal that the product isn’t worth the regular price.

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19 Melanie Oster (@Dream2theMax) July 13, 2011 at 1:38 pm

The Pricing Mistake You Won’t Recover From http://t.co/6jZDkeZ

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20 Melanie Oster (@Dream2theMax) July 13, 2011 at 1:38 pm

The Pricing Mistake You Won’t Recover From http://t.co/6jZDkeZ

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21 Theresa Sheridan July 13, 2011 at 1:25 pm

I made this mistake as well, then I started working with a marketing professional who quickly set me straight. We raised my prices a tad, and I started offering more value and WOW! is all I can say! My income has doubled in just a few short months, the clients are calling me regularly and I realize now that they can only get my designs from ME and like the commercial says, “I’m worth it!”.
Thanks for another great post!

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22 Dawn Martinello July 13, 2011 at 1:38 pm

I’m really glad you liked the post Theresa! People will often question what’s “wrong” with the cheapest product or service so it’s completely understandable that you saw such a huge increase when you raised your prices.

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