Not Pricing Based on Benefits to Buyer
This small business mistake is part of a collection excerpted from Gary Schine's book 101 Small Business Mistakes
Not Pricing Based on Benefits to Buyer
How often do you hear business owners complain about how little money they make on a particular product or service?
Recently a client told me, "Why this job will take me 20 hours, and this guy says he'll only pay me $200. It's not fair. My time is worth much more than that. That's only $10.00 per hour. I was making more than that working for someone two years ago".
Another client told me, "I have a bachelor's and a master's degree. I spent a lot of time and money to get those degrees. I have to be compensated for that."
The fact is that a free market system doesn't have to compensate you at any preset rate. A consumer can and will shop around for the best value from his or her perspective. No buyer cares what you were earning at your previous job, how much money you had to invest in business equipment, or how much it cost to get your master's degree. They only care about getting the best deal.
This is not to say that customers will not pay a premium for a product or service that they perceive to be superior. The point is that it is the buyer's perception of quality that is important, not the seller's perception. If, for example, your training has provided you with skills or knowledge that will provide clear benefits to the customer, make the customer understand those benefits. That will be far more effective than explaining how much work and money went into the training.
The concept of value based upon benefits works both ways. There are often instances where entrepreneurs earn far more money than they would be worth working for an employer. There are people earning hundreds of dollars per hour who would be paid only a fraction of that amount if they were employed at a market rate based upon their skills.
However, I don't think that I'll ever hear a client in this enviable position say, "You know, I'm really not worth this much money. I have no education. I would never be paid this much if I were working for someone. Maybe I should give my customers some of their money back." From the customer's point of view this is as illogical as paying more money than perceived benefits would justify.
Other Business Mistakes and Misconcetions
- Failure to Prepare a Business Plan
- Myth-- A New Business Must be Based upon Uniqueness
- Overspending
- Momentum
- Starting a Business for Reasons other than Market Demand
- Entering into Partnerships without Clearly Defined Roles
- Not Putting Partnership Agreements into Writing
- Organizing A Small Company as a Large Company
- Misconception-- A Product Can Be So Good, It will Sell Itself
- Not Understanding Your Product's Benefits
- Believing That Experts Have Magic Answers
- Not Pricing Based on Benefits to Buyer
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