My cousin Mike had a carpet cleaning business in Las Vegas. He worked hard and took care of his clients. The job was hard on his body, but he provided well for his family and made an above-average income.
When we got our first house, I called him and asked if he could come clean our carpets. He said yes and said, I normally charge $___ but for family, I give a discount of ___. I don’t remember the details exactly, but I remember his surprise at what I said next.
“I want you to charge me full price.”
There was a pregnant pause before he answered. “What?”
I repeated, “I want you to charge me full price. I want you to treat me like you would your best clients. I want you to not be annoyed that you have to come to work at my house. I want your best work.”
He said, “No one has ever said that to me. Everyone wants a discount.”
I told him, “I know they do, but I want you, especially since you’re my cousin, to be successful and to provide well, and I also want the best service. I don’t know about you, but wherever I go for the discount service, the cheapest option, the bottom of the proverbial barrel, I end up unhappy. I don’t like the cheapest stuff, the discounted effort, or half-measures. I want good quality and good service.”
There are some people who want a deal on anything they do. They are more interested in talking about how good a deal they were able to negotiate rather than the quality of the work, or the person doing the work. I am not saying that I don’t negotiate at car dealerships or for real estate, I do, but for a small local business, I pay what they ask.
You Aren’t Charging Enough
Many small businesses struggle to charge enough for their products and services. Here are the problems with charging too little for your services.
You don’t make enough money: I love the quote by a good friend of mine, Howard, that Koby mentioned in our podcast. “I am in business to make a living, not a killing.” If you are charging enough to hurt your client, that isn’t good. However, if you aren’t making enough money to provide for your family while keeping you in business, you must charge more.
You can’t pay your people well enough: To have great people, you need to pay them well and if you don’t charge enough, you won’t be able to pay them well.
You need marketing money: This is one of the largest expenses you will have as a business owner, so you need to make sure you have a budget built into your pricing to be able to spend on marketing. If not, you will struggle to grow and to survive.
The best training, materials, and skills: To be a top-level provider in any business, it takes skills, ongoing training, and the best materials. You need these things to be a top provider and to get them, you have to charge more.
You will still lose out on business: Being the cheapest will not ensure you get business. You are better off losing business because you cost too much than someone assuming you are too cheap for a reason. Some people, like me, want the best option, not just the cheapest option. If you have that customer, and you come in significantly cheaper than others, they won’t pick you because they will assume you aren't as good, or you will use cheaper materials. Spend the time to be excellent at what you do, and then charge a good price for your work.
Pricing psychology is fascinating. In Australia, KFC introduced a new sandwich and sales struggled. When they called a consultant in, he told them to raise the price. They were confused and admitted, “we were thinking of lowering the price.”
He told them, “it won’t work. People come to KFC for something cheap or for a treat. Even if you lower the price on the sandwich it won’t be cheap, but if you raise the price, people will assume it’s worth more and will put it in the treat column.” Sandwich sales skyrocketed at the higher price.
It’s more important to frame things correctly than it is to assume people want a cheaper price. Over 70% of respondents said they do not like paying a surcharge for using their credit or debit card, However, over 80% of respondents liked it when they were offered a cash discount. It’s really the same thing, just framed differently. You can make an incentive instead of a charge and people will love you for it. Charge more and give a discount, or a bundle, or something extra. Maybe a review, a referral, or bundling services for more value. Offering a discount is great if you frame it right, but you must price things right to be able to offer these incentives.
You might be worried about being competitive and think you are charging “market rate.” The best way to compete in a competitive market is to differentiate. Put together your story, and your product offering, and make it uniquely powerful, then you have something you can charge a premium for.
In the end, do superior work at a price you can make a good living with. Frame what you do in a way that explains the greater price. After all, you can explain the premium price once, or try and justify poor quality forever.