starting out a new business by offering lower prices

[Harold Mansfield]

Every time I take a job for cheap it always turns out to be more trouble than it's worth. I don't know if it's that people respect you less and feel like they can get away with more because they have deemed you desperate, or if there is just a personality flaw with people who constantly look to beat people down from their rates.

I lean more towards a lack of respect. If you go too low, people will not respect you and try to take advantage of what ever they can.
I've seen this in a few industries that I have been in. Every time you try and give someone a deal, discount, or help them out, it seems to be opening the flood gates for them to keep asking for more or not respect your time.

I've even seen this with "friends". Inevitably you will do work for friends at some time or another to help them out and give them a good rate. More than once I have had friends assume that they can get that same rate for others. Not only is it disrespectful, but it shows how little they value your time because you made the mistake of giving them a $1200 job for $400. So they have no respect for the value of what they just received.

I don't believe in going cheap. It's never worth it. I believe in being competitive, but that's going to be dictated by the situation and the industry. There is no one answer fits all.
I do believe if you can't make it on competitive pricing then it's more of a problem with the business and the market. If the only way to can move products or services is by selling below cost, then there may not be as much demand for it as you thought.

I also don't believe that you can tell a start up with limited funds to sell below cost or at a loss just to get a few sales. Unless you are Walmart ( and don't pay for anything until it sells and get everything cheaper than all of your competitors), that does not sound like sound business advice. There are other ways to generate sales without giving away the house.

I've seen other "just do it" type advices given but one thing that is never covered along with that advice is where do you get the money to compensate? I've seen the suggestions of things like "pay yourself a set salary", but where do you pay it from when there is no money coming in?

How do you restock supplies if you are buying at one price and selling below cost?
If you have determined that you need a markup of a certain amount just to keep the lights on, where do you get the money to do that if you sell below that amount?

It's easy to give that kind of advice when you aren't responsible for paying the bills, but from where the actual person sits, the math just doesn't work and no amount of back seat logic can make it work. Either you have the money or you don't.

[billbenson]

Everybody complaining about "cheap" here is really in the service industry. That is they are contracting for their time. However, everyone or at least most are applying the "cheap is bad" to all industries. That is simply not the case. There are valid business models that work around cheap.

[vangogh]

My business may be a services based business, but that's not where my thinking here is coming from. Business that succeed by pricing low do so by selling larger quantities. Small business generally don't sell in larger quantities. Think of the difference between the supermarket and ma and pa grocers. Ma and pa don't try to price lower than the supermarket. They'd go out of business. The supermarket can buy in greater quantity and because of that can buy at a lower cost. Ma and pa can't do that. The supermarket will always be able to sell for less than ma and pa and still do well.

For ma and pa to succeed they need to offer more value. Maybe they're more conveniently located a little closer to a residential area or they know their customers by name and the value is in the friendship. Ma and pa could deliver or they could buy special items for customers, etc. What they can't do is compete on price.

Success with low pricing is usually accompanied by selling in greater quantity. If you can increase sales enough to offset the lower price then you can go with the lower price. You can also use a lower price to bring people in, usually to sell them something else that isn't priced so low. You can also use low pricing to attract people to you or a product, though in those case you generally expect to make your money with another product or perhaps later by increasing prices. The danger there is that if you've been attracting people to buy something because of a low price and you remove the low price you may very well hurt future sales.

It's not that you can't start or even continue with low prices. It's that small businesses generally do better by charging more for more value. I'm sure there are exceptions, but I think there are better strategies for small businesses to succeed.

[Jessica]

Yup, I just put up my no haggling signs. Hope they enjoy them. They say "Prices are not negotiable" My worst fear did happen with a line of customers and the first one wants a deal on a $3.00 book, then his wife wants a deal on some leather shoes from Europe. I told her no and she was p-ssed. It's embarassing for everyone.

I'm thinking about handing out prefered customer cards to my regulars who spend a fair amount of money every 2 weeks. Like 10% off all purchases. Some of them have some haggling tendencies, but they are always buying in quantity.

What do you guys think? Would a 10% off eternal discount make them feel special or is it unnecessary?

That way, if another customer saw them getting a discount, I could explain to them, that they can have a discount card with a $50.00 purchase, so it is fair.

[Jessica]

Huggytree, that WAS your idea! I think I should do that.

[aaravdeeak]

This is for people like me who are also facing his dilemma.

From my personal experience of running a business for four years I would support starting with low prices and when customers turn up to give a smashing service. This will avoid you being branded as low priced business and also get you customers who like quality.

Someone said that people who come because of low prices a business is offering have similar associates who are price conscious. This is not always true. If a person is price conscious he/she will also have quality conscious associates whether they are associates or bosses - everyone as some boss, supervisor or manager, don't they?

From my personal example:

Started a business in publishing industry, kept the initial price of Product 1 $100 when competitors were charging $900 for similar product, and also kept the cost low. Started as a single person working on a laptop. Got the first sale in 10 days. and made $100. Was on top of the world on making my first sale. Second sale was 2 days later. Gave greatest service that was possible for me to give. After three months increased the price and kept increasing it regularly. Current price is about 70% that of the competitors. Now after 3 years have built a company, staff of 10 and my own office, all from this one product...get average 2-3 sales a day...and all this was achieved by working part time after office hours.

Started a second independent product about 4 months after the first one. Kept the price $500, while the competitors was charging $800. There was no link between the two products. Got first sale after 2 months. Got about 40 sales in 2-1/2 years

Started a third independent product about 3 months after second one. Kept the price $1100, while the competitors was charging $1200. There was no link between these three products. Got first sale after five months. Got only 3 sales in 2-1/2 years.

Why didn't I decrease the price of second and third products....for the exact reasons everyone gives....not to be perceived as cheap, to build a brand, to be in the top. Also probably the first product was going well and I wanted to build a brand using the other two. Maybe initial sales with decreased prices would have helped.

I would support starting with low prices and when customers turn up to give a smashing service and keep increasing prices regularly so that a business is not branded as a low price option. It is important for business and for psychological confidence to get the cash register ringing as fast as possible.

[shadojake]

I just came across this thread when it was bumped up by the previous post.

WhenI started my at home business in Dec. 2012 I started too low, but I was quick with my first price increase. Yes, even though I've been in business only about 15 months, I have had two or three price increases. I think i have found the sweet spot on my main product. Even though the price has almost doubled since I started no one bats an eye at paying the current price. I sell customized travertine coasters for $20 per set of four. When I started out I sold the first few sets at $12/set.

Others sell coasters but they generally are not as nice as mine. I know that sounds cocky but it is what others have told me. I have actaully walked around at craft fairs where others have sold them and looked at their work. Here are some differences ...
1) Mine are left unsealed so they can absorb moisture when a drink condensates. Others seal their coasters, causing the condensation to bead up then run off on to your table.
2) I use a waterfast ink so that when your drink condensates, you do NOT lose your design.
3) Due to using a waterfast ink, I can save time. I do not have to bake them so seal in the ink.
4) In comparison to most I use a better tile to begin with.
5) I have seen some use designs that I am 99% sure are copyright infringements.
6) I take time to explain our products and how they help and when I educate potential customers on the issue of sealing vs. not sealing they seem very glad to learn about it.

I think part of the branding that many have referred to is what you provide in service such as educating your customer/client on what sets apart your service or product. Can you do that in a simple and concise way?

I do agree that it can be hard for a new business owner to find the sweet spot in pricing. I think it can be a lot of trial and error. However, doing some calling around can help a newbie see what others are charging for the same services. When I see coasters similar to mine for sale I do check out the prices. Usually they are lower than mine. However, I have never had anyone say, "Well, so and so is selling theirs for $xx.xx and are much less than yours." (Some have been anywhere from $8-$10 less than mine per set.) Only once has someone asked if I could "do a better price". I said that I was already offering the best price that I could. They chose not to buy. Their loss.

I heard a lady at another craft booth recently say that she does not charge for her time when pricing crafts. I have a total opposite mindset. I include mark up for my time.

For my other products I suppose I am still tweeking the sweet spot. I may be slightly high on one of my products and need a slight decrease. For yet another product, I still might be slightly too low. It is still a learning game for me in some ways, though I have been doing this for 15 months.

I must say this has been quite a lively discussion!