This is the fifth 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
A new product often faces opposition from people who are just plain afraid of change. Fear of something new is common to most all of us. We prefer the safety of the known. This fear can cause people to be critical of something they obviously know nothing about.
The same fear of the unknown that inspires people to be critical of things they have no experience with can also cause entrepreneurs to undermine their own efforts for success. They worry that they will not do well, or that they will not provide the level of service that customers expect. They worry that because they are an unproven entity that they cannot charge the full value for the product or service.
Granted, many first time efforts are less than optimal. I'm certain that the early writings of J.K. Rowling were not great. Some may say that even her current writings are not that great but they sure sell well enough. Van Gough's early works were not spectacular but they are worth a fortune now. What changed the value? Repeated improvement and a resistance to abandon something these artists felt strongly about.
Seth Godin wrote about a part of this fear of the future in his book, "The Dip." The issue is that there will always be a point where things go from casual to serious when a hobby or thought starts to become a business. Many who face that point give-up or fail because they do not give the hard charge for the top that is usually required. The Dip is only about 80 pages and should take less than an hour to read but it is well worth the effort. It's not his best book and if you read his blog regularly, you have probably heard it all before. Still, it's a good book to have on the shelf and to give to someone for a quick read. (Seth's post for yesterday is quite appropriate also - are you afraid to charge more?)
What does fear of the future have to do with the issue of undercharging? I think it has a lot to do with it. People are afraid of failing and what that could mean for their future. They worry that they are "writing checks that they cannot fund" so to speak. In many cases, there is also a lack of confidence in the product. You have never done this before, how do you know it will work? On the same token, how do you know it will fail? A bad plan executed with enthusiasm and vigor can often beat a good plan that is carried out with timidity and fear of failure.
In the end, it comes down to two simple facts. If the product or service is not worth the price needed to make sufficient profit to operate the company properly, then perhaps you should not sell that product. If the product is worth the price, and you can back that up, then proceed with courage and enthusiasm. Give it the hard charge it needs to succeed. If nothing else, consider what you will learn if you go for it with all you can. Even if you do fail this time, you will be better prepared for the next time and the next.