Pricing pressure: How to get out of the ‘rate-race’
It strikes me there is a race to the bottom when it comes to pricing lately. Here’s what not to do when you feel you are under pricing pressure.
Are you finding that less and less of your quotes are turning into bona fide sales? It appears that a lot of people just don’t want to pay a reasonable price for quality service anymore.
Pricing pressure occurs for a number of reasons:
- People are spending less money because of financial uncertainty.
- There is more competition from overseas companies.
- The internet makes it easy to find your competitors, so shopping around is convenient.
A logical reaction to pricing pressure is to slash prices to be more competitive. The problem is once you start trying to undercut your competitors, you have unintended side effects to consider:
- You can’t sustain it long term.
- It creates the expectation of low price; if you increase price you lose your customer base.
- How do your current clients feel about you halving your prices?
Help, my clients are horrible!
When we started Hunting With Pixels, our mission was to make business video affordable, so we started a campaign offering very cheap business videos.
And we got the business. Only, the wrong kind.
"Our price fighting attracted clients who wanted everything yesterday, and didn't take the projects seriously enough to bother preparing or thinking things through. "
Our price fighting attracted clients who wanted everything yesterday, and didn’t take the projects seriously enough to bother preparing or thinking things through.
Our product had become a commodity.
The worst thing of all was we weren’t having any fun at all! The low profit margin resulted in not having the budget for anything like improving quality, doing training or attracting great people. Something had to give.
I reckon you need to get used to the fact that some people will baulk at your prices. After all, there will always be someone on Google who will work for less because they’re 22, a student and living with their parents, or they live in a country where wages are $4/hour.
What will get you out of the race to the bottom is offering value. Your clients expect better value than ever, and they know where to get it.
Keep the course, but notice if the winds change
There will always be a need for people who do a great job, get it right the first time and get people the result they need without any hassle. That is value that people will pay for. You just need to find a way to persuade your audience how you are worth that hourly rate; you will need to provide proof of that claim.
And if technology or the competition changes the goal posts? Add more value. Come up with a better product. Find a more convenient way to deliver it.
Now walk the talk
Things aren’t getting any more comfortable in the next few years, but there’s great opportunity for companies that offer great value and do a good job communicating that.
So, to stay competitive with your cut-price peers, keep the following in mind:
- We have to work harder for our dollar; people will shop around.
- We have to offer compelling reasons for people to choose quality over low price.
- We have to back that promise up with real life, verifiable case studies and client testimonials.
- But most of all: we have to always deliver on that promise.
What tips do you have for adding value to your offering? Add your thoughts on pricing pressure below.
If you need help calculating your hourly rate? Try Flying Solo’s hourly rate calculator.