Your Startup Is Leaving Money On the Table
Have you ever asked your paying customers how much your product or service is worth?
I do this a lot, and it’s not as scary as it might seem. Often, the majority say the product is worth more than what they’re paying for it. And that’s a good problem to have, right?
Well, yes and no. On one hand, it proves my business offers a lot of value. But it also shows that I’m leaving money on the table. In some cases, lots of money.
Undervaluing a product or service is a common startup pricing mistake. Once I understood why I kept making that mistake, I was able to break the pattern and make a lot more money per sale.
So let’s talk about why we entrepreneurs constantly sell ourselves short, using four pricing rules I run all new startups through.
Rule #1: Don’t price based on your competition’s price
Establishing a price model and setting proper pricing is one of the most difficult parts of developing a new product. And when it comes to difficult business concepts, we entrepreneurs tend to learn a lot of those concepts by osmosis — we analyze how established companies do things, and then we copy those things.
This is a great way to learn a lot of business concepts. But not this time.
When it comes to pricing a new product, one of the mistakes I see a lot — especially with early startups — is basing their initial price on their competition’s pricing. In my experience, the majority of startups launching new products undermine their pricing by about 10 to 50 percent in an effort to be competitive.
Pricing to undercut your competition is usually a losing strategy, because it undermines the unique value of your solution. So when you’re deciding what to price on, always choose value over competition. You’re not selling software or widgets or services, you’re selling value.
Rule #2: Break the psychological pattern
I still suffer from this, but I’ve learned how to get past it. It’s that nagging voice in the back of my brain saying: “This is just something I created…