Years ago when I started my first side-business, I thought that how you set pricing for your product or service was simply to shoot for just below the competition. I thought people would choose who to buy from based on price alone, and so if I was a little less than everyone else, they would pick me.
This is a terrible idea.
Simon Sinek notes in his book, Start With Why, “Selling based on price is like heroin. The short-term gain is fantastic, but the more you do it, the harder it becomes to kick the habit.”
For one, once you train your customers to look for and expect cheap prices from you, it becomes insanely difficult to ever raise those prices and teach them differently. Additionally, it communicates how much you value the product. You’re teaching them the worth of what you’ve created by setting the bar so low. You will also have a hard time fighting for margin and profit if you are always trying to be cheaper than someone else. And lastly, you miss part of the market that wants to pay more because they want a high-quality product.
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For example, I usually shop at Publix over Kroger and Target over Walmart. For me, it’s worth it to pay more and avoid the lines, chaos and overall experience I have when I go to my Kroger or Walmart. Sure, some people would think that’s snobby. That’s okay.
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But when you think about your business, that may be just the type of person you want to price for and sell to.
Let’s say you sell handmade dresses for children. The type of person who wants to buy a unique, high-quality dress but does not have the time or desire to sew it herself is the customer you should price for. Your small home-based business can’t and shouldn’t try to compete with the Walmarts and Amazons of the world.
So don’t just try to undercut the competition. Instead, price your products based on what they are worth and who you are selling to. Then you will attract the right customer that’s happy to pay your price.