http://www.entrepreneur.com/article/220158 (accessed August 21, 2011)
Lisa Girard writes an article in Entrepreneur magazine giving the 5 Signs It’s Time to Change Your Prices. In this week’s blog, I give you her signs and a view of Kendrick Law Practice’s (“KLP’s”) perspective and experience in the area of pricing strategy.
Lisa and I both agree that it is VITAL for small businesses to price their products correctly in order to generate profits. However, it can be tricky because you don’t want to OVERPRICE but at the same time, and what is more common in small businesses, you don’t want to UNDERPRICE your product or service. Take a look at these five (5) signs and see if it’s time for you to change your prices and revise your pricing strategy, which is a long term objective and plan.
1. Competitors are charging more for inferior products. Small business owners especially think that they have to underprice their competition to gain business to the detriment of their contribution margins and profits. Not so! Customers are willing to spend money in one of three scenarios: (1) A business has a lower price but similar or comparable services or products as the competition, (2) A business has similar prices as the competition but offers similar or slightly better services or products or (3) A business has something more valuable to offer customers in which customers are willing to pay a premium or a higher price than the competition. So if you are offering something more valuable than the competition, UP THOSE PRICES because customers are willing to pay!
2. Your storefront is covered with ‘sale” signs. Not only does this attract customers that are less than appreciative of your true worth and value, but it also sends the wrong message, i.e. “I am cheap.” and no one or business wants to be known as cheap. Believe it or not, customers are willing to pay for services and products that create VALUE, not just price cuts. Ever heard “You pay for what you get?” Well, a lot of customers take this saying to heart and are willing to pay for value added services and products. Don’t undermine your business potential. Know the value of your business and work on conveying that message of value to your target audience instead of “racing to the bottom” on price cuts and sales.
3. Your cash on hand takes a dive. Cash on hand is cash at the end of a fiscal year, which is decided by your business. If costs increase, prices need to increase. Taking Nos. 1 and 2 from above can also have an impact on cash on hand. Compare cash on hand this year to last fiscal year. If it has DECREASED, you need to take a look at the pricing margins and strategy to see if it’s time to raise your prices.
4. Your sales staff relies on price cuts to close deals. Inherently, this will lead to lower prices which lead to lower margins which lead to smaller profits which lead to less compensation and benefits which leads to a frustrated sales team. AVOID THIS. You don’t want an unmotivated and frustrated sales team and you don’t want your team to sound like a crowd at an auction, throwing out lower and lower prices just to gain a customer. Know your marketing strategy, know your pricing strategy and give your sales staff training to go out there and get the customer without all the price cuts.
5. Your business is attracting bargain hunters. For all apparent reasons, this is no good. Imagine cutting your prices so low that the majority of the customers you attract are bargain hunters. The next time you solicit this group, they will expect the same deep cuts and possibly even more! Don’t make a habit of attracting the wrong people. You want quality clients that appreciate you and your services or products and realize your value. Those are the clients that keep coming back and aren’t looking for the next cheap deal.
Know your value. Market and convey that value to others. Stay the course on your pricing strategy—it’s a long term investment that will pay off in the long run and allow you to have a better QUALITY of clients that are repeat customers.
My Perspective: KLP Has Learned…
1. Competitors are charging more for inferior products. Fortunately, KLP has never had this problem. From the beginning, I have never set to be the “low cost leader” in the area of providing legal services. In the beginning, our prices were comparable to other law firms with attorneys with my level of experience and expertise. Today, our prices have a slight premium because of the value added activities and services we provide (see below).
2. Your storefront is covered with ‘sale’ signs. KLP is a virtual law firm so there is no “storefront” besides the website. While our website has never offered discounts, KLP had a practice in the beginning of offering “coupons” within its brochure or to different groups I addresses during seminars. Bad move. Professional services, so I learned, are ones in which customers are willing to pay premium prices. Coupons only puts images in the minds of potential customers that this business is not professional enough to offer these services at full price and that is deadly for professional services. Therefore, KLP has done away with “coupons” and only rarely will offer “gift certificates” of a minimal amount as a part of a package deal with another organization or presenter.
3. Your cash on hand takes a dive. KLP has only been in operation since January of 2010 so the verdict is still out on cash on hand for this year. But I believe we will see cash increase this year.
4. Your sales staff relies on price cuts to close deals. Fortunately, KLP has been steadfast in this area as well. No matter what “competitor pricing” is quoted to KLP’s staff, there are clear directives that “our prices are our prices” without room for negotiations. They account for the value that has been placed in our services and the competency and level of expertise that we possess with an opportunity for us to make profit as a business. Sales staff do not participate in “race to the bottom” tactics with potential customers or competitors. It’s a good practice to keep consistency of pricing across the board as well because past clients do talk to each other and you don’t want inconsistent pricing.
5. Your business is attracting bargain hunters. KLP does not market itself as a “low cost leader” but certainly it is a “bargain”. This is because KLP offers comprehensive business and legal advice for one price, we offer access to resources and opportunities that other firms do not, and we offer our golden 3 point guarantee. Instead, we want to attract “value hunters”—customers that can appreciate the value of KLP services and expertise but also appreciate the prices that we have put in place, which are a slight premium on other law firms but with an abundance of value added activities and services that KLP clients can appreciate.
- We offer comprehensive legal AND business advice and consulting, creating value for your company’s investment in us.
KLP’s Founder, Dar’shun Kendrick, holds a law degree and Master’s in Business Administration.
- We offer a three (3) point guarantee:
- “24 hour guarantee”-
You will receive a phone call from an attorney within 24 business hours of submission your information through our website;
- “72 hour guarantee”- You will receive your document drafted or reviewed within 72 business hours after payment (or it’s
- “Dispute guarantee”- KLP will negotiate the terms of any document that we drafted or reviewed FOR FREE should a dispute arise (*Does NOT include litigation costs.).
- We provide access to a number of opportunities and resources.
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