- You cut your profit margins. Do you know how much—exactly—your profit margins are now? If your margin is now $50 on a $100 product and you cut the price by $25, you lose 50% of your net profit.
- You can’t invest. Low profit margins mean that you can’t invest in anything. Any additional marketing expense, for example, leads to even smaller margins, which is unsustainable if you already have small margins.
- You need to attract more customers. You won’t automatically get more customers when you lower your prices. The lower prices just make it a little easier for people to buy. You need many more people to make the buying decision for you to get to the level you were on with higher prices.
- You lower your product’s perceived value. Like it or not, people almost always expect an expensive product to be better than a cheap one. Discounting your products too much can even make you lose customers (instead of getting more of them).
- You can attract the wrong customers. This isn’t necessarily a problem for you. But if you aim to attract clients who could afford a more expensive option, you’re likely to lose them with low prices if the pricing makes you seem inexperienced, low-quality, or unprofessional.
- You can end up with “bad” clients. People who are willing to pay a premium price for your products and services generally appreciate them more than those who are only willing to pay a bargain. Which group do you want to attract?
- You start competing on price. If your products are a good choice just because they’re cheap, anyone can put you out of business by offering even lower prices. It’s certainly possible to make a great profit by selling lots of low-margin products, but it’s extremely difficult to make that business model work.
- Look at each service separately.
- Count the time it takes to complete a project (remember to include all the time it took to get the project and everything you actually do during the project).
- Count how much money the project costs you (including advertising, client lunches, etc.).
- Deduct your real costs from the project fee and divide the result with the hours you spend on it.
- 250 hours to create the product
- 10 hours per 30 sales for marketing, selling, and customer support
- 30 sales per month
- 5% cut for payment processor
- $2 advertising cost per sale
- And the price is $67