Every Company Needs a Good Map

This is the third in a series of posts on the issue of setting prices too low.

Undercharging is a mistake that happens for many reasons:
·    Fear of losing sales
·    Desire to spread their beneficial product
·    Over-developed fear of greed
·    Lack of confidence in the product or service quality
·    Attempt to undercut opponents

In this post, I want to address the sympathy factor in price setting. This is a major problem for many creative entrepreneurs. Scientist, doctors, or other skilled professionals or compassionate people feel guilty for charging a fair price at times. They were trained, or raised, to give to the world not take. They feel that when they are paid more than the cost of the item or cost to provide a service, they are in some way being ungrateful or uncharitable. Once again, the issue is a fault of short-term thinking. The thinking goes like this:

"So many people will be helped by this ______. If I charge too much, many people will not benefit."

Charity is a great thing. I would not want to diminish generosity in anyway. However, if your goal is to build a business that will last, then you have to have a profit that not only pays for the work that was done to get to the point of launching the business, it also has to have a bit to pay for the future. Adding a minimal amount to the "cost" of an item usually is a terrible way to price an item.

The goal should be to charge what the market will tolerate. Keeping in mind that perception of value is often related to what the seller charges for the item. This is not to say that one needs to charge an outrageous amount just because you can, but one should charge enough to pay for future development, for all current costs, and a bit more to make sure the company can survive in times of difficulty.

You may also want to consider that a profitable company can do a lot to employ more people. As more people are employed they are able to help themselves and others. A company that makes beneficial products at a good profit is something to be proud of. With those profits more products that are beneficial can be developed and so even more people are assisted.

There are also people who think that the way to fame is to have a product that millions of people use. They then cut the price so low in a hope that a lot of people will buy it just because they can afford it. The trouble with this line of reason is that without promotion, which costs money, rarely does anything catch on. Granted there are rare, one in a billion, situations where a person just doing their little thing is discovered but that is so rare as to be disregarded as a plausible business strategy.

Free or cheap do work well when they bring attention to another product or service. This is often called a "loss-leader" because it leads customers to the product that the company wants to sell more of.

Just remember: If you do not cover all of your costs and then a bit for emergencies, you will not be in business very long.