Setting the price for a new product or service can be an agonizing process for new entrepreneurs. If they set them too high they risk turning off new customers. If they set it too low, they risk leaving money on the table and locking their businesses into low prices.
Diana Ransom writes about the challenges of pricing at SmartMoney.
Newbie entrepreneurs often miss the mark on pricing, says Laura E. Willett, a small business advisor and finance professor at Bentley College in Waltham, Mass. Entrepreneurs either blindly place a price tag on their product or service without taking a proper reading of the market or, perhaps more commonly, they underprice their offerings on purpose - effectively apologizing to the market for being new and inexperienced.
Ransom interviewed Belmont alum Cameron Powell for her story:
When Cameron Powell launched River Rock Media Group, a Nashville, Tenn., photography and media production company in 2005, he charged just $75 an hour for his photography service. Considering that similarly equipped photographers can earn between $1,500 and $2,500 for a full day's work, he's certain he underpriced himself.
"It got me gigs and it gave me experience working with people. But it didn't help me gain a whole lot of footing with the market I wanted," says Powell who now earns the going rate. Instead, he adds, "I was attracting people who didn't have any money."
If you have to offer low prices to enter a market, make it clear that they are introductory discounted prices. Don't start with a low price and hope that you can increase it down the line.
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