Pricing: I HAVE To Make $X!
I watch the “house flipping” shows on weekends – both the amateurs and the pros. And, when it comes to pricing it’s always easy to tell who’s done flips before:
Amateur: “I raised the asking price because I ended up spending more money than I budgeted – and I have to make $X.”
Pro: “How much can I sell it for today?”
The amateurs decide to ignore market conditions, advice from realtors and experienced flippers, and often glaring problems in their renovation. (“Maybe they won’t notice the mold.”) They have to make a certain amount of money – so – presto! - they dig in their heels, set their jaw and demand a price. This is typically where we then see graphics on the screen rolling up the tally of the days, weeks, even months on the market while some poor baby flipper is shelling out carrying costs.
And so it can go when start-ups do pricing. Anything – from houses to the latest gee-whiz technology - is only worth as much as somebody will pay for it. Of course, in the case of the house flippers, they only need to sell one. “Cost-plus” pricing (“I have to make”) isn’t the same as value (“What can I sell it for?”) pricing.
This stubborn denial of reality is also a common problem in established businesses. In one huge company I worked at back in the day, the finance department set pricing to cover overhead and “assure” a certain profit margin. As the LAN/PC services product manager, I’d meet with the CFO and present market information…then wheedle, plead, cajole - often to no avail. But no matter if I lost! The field just routinely discounted 50% to 75% anyway (as they’d been doing for years.) Then there was that teensy little problem that we at HQ often didn’t really know what had been sold, since we didn’t have accounting codes set up for many of our new IT support services. (Accounting: “You can’t launch that, we can’t figure out how to bill for it.”) The salespeople, bless their mercenary little hearts, simply entered everything in the 9999 (other) category. We had a booming mystery business…and mystery margins.
Read More: “Value-priced strategy: “We’re not the cheapest, but…” Short on-line article at Small Business brief by Henrietta Martel-Lawson, uthor of 200 Marketing Ideas for Your Website.
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Tags: pricing, marketing, marketing troubleshooting, vision, entrepreneur sanity check
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