How to grow your business – Is cutting your prices the answer?
27th March 2018
The most powerful driver for growing your business undoubtedly is how much you charge for your products or services – whether you have a whole range of pricing structures or just one fixed price. Getting it right can make the world of difference to your bank balance.
So, this seems the perfect place to start when you want to attract more customers.
Is price cutting the answer?
In any business, it is normal to look at what competitors charge for similar goods and services. Whatever they charge, the first thought for many business owners to cut prices in order to steal customers away from them.
Although this may be very tempting to do, a panacea to enliven any stagnant company, cutting your prices is not usually the answer. Why?
In short, you have to win so many more customers to make up the shortfall in numbers. The maths is simple – you cut your prices, you have to sell more - much more - to make up the loss. It is much harder than keeping prices the same and making your business desirable to potential and loyal customers.
Stand out from the crowd
You want to be the one who stands out from the crowd, but for the right reasons. You don’t want to be the cheap competitor having to cut corners to fit in all the customers you’ve attracted.
It is important to be the well-honed business, renowned for doing the best job, have the best customer service and a reputation for quickly alleviating any pains your customers may have with the work you have undertaken.
You also want to consider the kind of customers you attract by slashing your prices. These are the customers who might shop around for the cheapest price all the time, and they won’t necessarily be loyal to you the next time they come to buy. They might only stay with you for a short period before they look for another company who is cheaper than you.
Think. Are these your ideal customers?
By offering cheaper goods or services than your competitors, you will have to do so much more work to attract customers every single year, tying up both your time and your money with marketing your business, rather than concentrating on doing an excellent job for your loyal customers, who are willing to pay for the service.
What will a lower price do to your cashflow?
Cutting prices is detrimental to your business, not only in terms of profitability, but also your cash flow. As the last blog stated, there is a difference between your profit and your cashflow and therefore to make more profit at lower prices, you must sell more than you did before you cut them. This way, your cashflow is all tied up: you have more money going out to pay for stock, work-in-progress and debtors.
You see, once prices are cut, you have an immediate shortfall, not only in your bank account, but also in delivering a memorable service to ensure your customers come back time and again.
This article is an extract from my new book The Keys to the Kingdom. For a FREE copy of the book, click here.