Majority of the new entrepreneurs do this rookie mistake when they set prices for their products and services. To be honest, unless you correct this immediately, it can strangle you to death. Well, I mean, it can kill your business. Let’s have a look.
The biggest mistake you do when setting prices for your products and services
Starting a business is, of course, and overwhelming process. Setting prices for your products or service can be even more troublesome. After you start a new business, most of the time, you might not get a single customer even for weeks. Then we start thinking… “What is wrong with my strategy? Are my prices too high?? Should I reduce them a bit???” Well, at this point, we tend to cut down the price tags hoping that will attract more prospective buyers. We have all been through this scenario, don’t we?
So, which part of your price calculation formula is the easiest to cut down? Yes, you got it right! You will cut down your profit margin to reduce the price. Then, this is the point that you make the mistake!
Related: How to price dropshipping products
Your profit margin is not something that you can sacrifice so easily!
Before we go ahead and see why you cannot curtail your profit margin, let’s have a look at the main components of your profit margin. Well, a profit margin is not just a single component. It consists of many different sub-components.
Usually, your take-home money (your profit, in many cases) has two major components.
- The cost of your time (your salary)
- Savings (the real profit)
We often forget the first part. Remember, when you start a business, you also work in your business as an employee. It can be from one or two hours a day to full-time work. Therefore, you need to set aside a portion of the profits as your salary. That is the amount of money which you could earn by doing something else during that time. And, you must decide this amount by carefully evaluating the personal finances and living costs.
Usually, the second part of your profit formula is the net profit of your business. It is the amount of money that you can reinvest to grow your business. So, if you decide that reducing your price tags is kind of an investment for your business, you can only use this second part to do that.
Don’t just set your profit to be 10% and then make it 7% to reduce the price
As we have seen above, you cannot play with your profit margin that easily. Therefore, make sure to follow a systematic way when pricing your products. It is always better to treat yourself as an employee and add your salary as a cost when pricing. So, you can have a clear overview of the money that you are earning.
After all, you are starting a business. Your purpose in doing this is to make money. So, don’t get romantic with your business. Remember, your personal finances are extremely important. If your business doesn’t make any money, don’t let that strangle you to death. Just find another way. If it is not the right time, take a break, and do a job to make a foundation to start again.
What are the other things that you can do to bring more customers rather than reducing the price?
Well, pricing is also a marketing tool. But we don’t always get the luxury to play with the prices when it comes to marketing. So, let’s have a look at the other possibilities to bring in more customers. After all, the reason for your business to not getting any sales might be the lack of a good marketing strategy.
Build a strong Facebook marketing strategy
Having a strong Facebook marketing strategy is one of the most effective marketing methods in this century. The best thing about having a Facebook marketing strategy is that it has a massive audience for literally every business niche on the earth.
Build an email marketing strategy for your business
Email marketing is still proven to be one of the best marketing strategies. Although social media marketing is kind of overshadowing email marketing, yet there can be many untapped possibilities for your business.
The final takeaway
The only message that I wanted to give is not to play with your profits without a good understanding. I made that mistake at the beginning, and now I realized it might have cost me a fortune. Finally, when you start a business, make sure to treat you as an employee. Remember, we are not doing businesses for charity. The purpose of starting a business is to make money.