4 Tell-tale Signs You May Be Undercharging
As an entrepreneur or small business owner who is new to the market it can be very easy to undersell your services and your abilities. This under valuing of your services could be down to a simple lack of experience of the market place or poor market research, or it could be you are choosing to under sell your self to get your foot on the ladder in the marketplace. As we all know, a loss leading strategy can be effective but only if it can be shown to be yielding incremental revenues in the medium and long term, otherwise your business is slowly crashing.
But, a loss leading strategy (whether deliberate or accidental) is only a short term solution because if you continue to undersell, your profit margins will be squeezed and you will soon be loss making and eventually will not be viable. You should also be aware that the more you undercharge the more effort you will need to put in to simply break-even, which means you will have less time for strategy and marketing, which will also be damaging to your business.
Before you all go rushing back to a paid job with annual pay rises, remember that as a small business owner you are not at the mercy of your employer in terms of when a pay rise is given, you can raise your prices when you want, according to each client. And below, I have set out 4 tell tale signs that you may be undercharging.
1.You haven’t lifted your prices in quite a while
Its easy to set a rate which appears to work well, but fear can prevent us from changing the rate as we don’t want to interfere with a formula that works. But this can be a self limiting approach that eats into your profits as over two or three years your costs will have risen due to inflation. Also, you may be missing an opportunity as your clients may have raised their own prices meaning they will most likely be able to absorb your price increase.
2.You are overloaded
If you are finding that you are consistently overloaded this can of course be a sign to get more staff which will increase your overall revenues and profits, but it won’t necessarily increase your earnings/profitability per employee. Being overloaded is also a clear sign to raise your prices as your services are in demand and it will increase your earnings per employee, ensuring greater profits.
3.Customers accept your price proposals without negotiating
If you are putting in proposals and bids and are finding that customers are literally biting your hand off, e.g. buying without negotiating and/or spending much time deliberating, this can be a sign that you are undercharging. Its likely that the customer may pay some more for your services with a little negotiation.
4.People who are charging more are beating you to contracts
If you are finding that you are regularly losing contracts even when you are the lowest bidder it can suggest that your prices are too low and you are misreading the market. The best clients are not always looking for the cheapest most cheerful price, they may be looking for the best value based on their requirements. Being too cheap may mean that you are having to sacrifice market critical service features and quality which mean you are not viable or attractive to the marketplace.
I’d be interested in hearing of more signs that one may be undercharging for their services.
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