My last couple of topics have raised the issue of how much one charges for their services vis a vis the service they provide. This topic really came to a head earlier this week on one of the industry forums I frequent. Seems like there’s this company offering a suite of services for a fraction of what anyone else in the industry would offer. After an informal survey, I found that just about everyone when presented with the same list of services would charge anywhere from 3 to 5 times what this company in question was charging. The thing is, this particular company is not selling on volume and their product is pretty decent. So, what gives?
Perhaps they’re afraid they need to charge low in order to compete? Maybe they don’t think there’s anyone in their market who would pay a fair rate for the suite they offer? Maybe they just want to “give back” by charging an extremely low price? Who knows? And frankly, who cares? In my humble opinion, most of us should not be competing on price anyway.
First, to clarify, by competing on price, I mean that you heavily market the fact that your prices are lower than everyone else’s, or you aggressively use discounts to lure prospects and gain new clients. There are many businesses where competing on the price platform is a good strategy. However, many of you reading this blog do NOT fit that criteria. Most of you offer a relatively customized service and are heavily promoting (or should be promoting) a unique brand.
So, here are the five main pitfalls I see the low-price strategy causes:
- Setting Low Expectations: Many companies low-ball in hopes of getting clients and quickly spreading the word of their services. The problem is, they’ve now set an expectation with everyone that their rates are low. All the referrals they get will be prospects looking for the same low rate as the people that referred them received. If you ever plan to raise your rates, it will take you longer to do so. The more people who get used to you at the low rate, the more people out there selling you on how cheap, excuse me, how inexpensive you are.
- Eliminating Your Uniqueness: Once price becomes the determining factor a prospect considers with regards to your company, you’ve essentially eliminated most of your uniqueness. Why? Because EVERYBODY can lower their price. You’re just a dollar sign now.
- Burnout: if you rack up a large number of jobs at a price well below what is fair (or what the market could bare), you stand a greater chance of burning out. I’ve talked to so many videographers and photographers working 80-hour weeks and killing themselves doing 50, 60, 70 and more gigs a year, by themselves (i.e. shooting, editing, etc.) Most of them could (and probably should) double their pricing, improve their marketing, and do fewer than half the gigs (which will effectively increase their profit).
- Usually More Headaches: My experience (and the experience of many colleagues I’ve spoken to) has been that the clients who nickel and dime you and don’t value your services as much, will be the ones who result in the most challenges. They often will be the ones who demand more (but won’t want to pay for it). The sort of clients willing to pay top dollar are often the ones who are used to paying for professionals they can trust. And they let those high-paid professional do their job.
- Low Balling Could Backfire: Sometimes low balling for a job could actually lead to you losing the gig. Many prospects will come to a particular job with a set ballpark in their mind as to what a quality job should cost. If you come in too low under that, you’ll be perceived as not being of the caliber company needed to do their job. If a bride has it in her head that the best photographers start at $10,000, it’s going to be hard for her to see you as the right man/woman for the job if you’re only a $5,000 photographer.
WHEN “THE PRICE IS RIGHT”
Competing on a low-price platform is best if you can meet the following criteria:
- Your product/service is a commodity. That means, a customer can get the EXACT product or service from a bunch of other companies relatively easily.
- You have economies of scale. This essentially means that as the number of products you sell increases, efficiencies allow you to keep production and distribution costs down. Or, you can reach a large number of customers for the same cost as a small number of customers. (e.g. selling a “how to” DVD vs. teaching each customers 1-on-1).
- All systems go. You have systems in place allowing you to effectively and efficiently produce and distribute your product/service, while still providing top notch customer service. Strong systems will also allow you to effectively run the inner workings of the business without “burning out.” This includes accounting, project management, sales, marketing, etc.
For the record, I’m NOT talking about newbies who have to do their first few jobs for free or at a low price so they can build a portfolio. Every service based business is going to go through phases. I’m talking about once you’re well established and looking to grow.
I’m also NOT talking about vendors who offer a service that happens to be priced relatively low, but the work is commiserate with the pay. For instance, many wedding videographers now offer “same day edit” only packages. Relative to the cost of an entire wedding movie, the rate is low, but what you get is far, far less. Most same day edit only packages cost as much (or even more) than “low-ball” studios rates for an entire, full length wedding movie.
Don’t be afraid to go out there, be bold, and charge a rate that is worth the time and effort you put into it. In the long run, you’ll be happier about the work you do, which will result in you doing a better job, which will result in a happier client.
I DOUBLE-DOG DARE YOU
For those of you who are feeling bold, I double dog dare you to double your rate for the next two prospects that come knocking on your door. Just do that little experiment and see what happens. Or, better yet, set up a separate website that offers the same service as your main company, but charge twice the rate and put those prices on the second company’s website. (Since this is just an experiment, it’s okay if you want to go ahead and get a cheap template site. I’ll let it pass this time. But promise me you’ll customize it if that second “experimental” business takes off. 😉