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What every business owner needs to know about prices and fees

By Jim Connolly | January 28, 2013

How do you decide what to charge for your products or services?

I ask this question because one of the biggest and most costly mistakes small business owners make, is that they set their prices or fees based on what they need to sell them for. Here’s an example of what I mean.

People buy for their reasons, not ours

I had a chat last year with the owner of a coffee shop, who was worried about how few customers she had. She explained that her prices were between 10% and 30% higher than other, equally good coffee shops in her area and as a result, the place was almost always quiet. I asked why she charged so much more, when there was no clear reason as she was stocking the same quality of products as her competitors. She said that she HAD to charge more than her competitors, because her rent was far higher than theirs.

I noticed last week that the coffee shop had closed. As she discovered, local coffee drinkers didn’t care that she negotiated a crappy rent agreement with her landlord. They just saw that she charged more money for the same coffee, so they went elsewhere.

The role of value

In almost every industry, there are businesses who serve the bottom end of the market and others that serve the top end. In each case, their customers are buying based on value.

  • Those who value a super-low price will make their decision based on the cheapest deal they can find.
  • Those who value outstanding products and services, will make their decision based on quality and excellence.

What doesn’t work, is when a provider sets their prices or fees based on their need – rather than the value they offer. Your prospective clients don’t care that you need to earn X every month. They care that the value they receive from you, is greater than the price.

The importance of adding value

Smart business owners have figured out that if they pump enough value into their products or services, they can have an extremely profitable business. They have also discovered that it’s a lot more professionally rewarding, to work with clients and serve customers who value quality. I believe that in an age, were customers can find the cheapest provider on Google, in minutes, it has never been more important to focus on value.

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Hi! I'm Jim Connolly and I help small business owners to increase sales, boost their profits and build amazing businesses. Read more here.

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