Pricing your products and services is a challenge, whether you’re a brand new startup or an experienced entrepreneur. You want to be competitive with your prices, but not too cheap (as that devalues your offering).
You’ve conducted your market research and know what level to price at… so how do you respond when a potential client says you’re too expensive?
Before creating any kind of response, whether in person or via email, take a step back. Your business is your project, so you’re going to feel emotionally connected to it. Being accused of outpricing yourself can feel like a personal insult – but it isn’t.
Remember two things:
1) This is often the start of a negotiation tactic, and
2) The other person is making a business decision, not a personal one.
If someone steps away from your business because of your price, they are not the right client for you anyway. You’re either out of their price bracket on a practical level, or they want lower quality products for less money – both of which are not your problem.
2. Come Back With A Non-Monetary Negotiation
If you really want the client to work with you, see what else you can offer. Rather than reducing the price, consider what else you can throw in to sweeten the deal. This could be more products, or freebies with every fifth order. Whatever your business model, there are always additional things to offer.
By increasing your offering, instead of reducing your price, you’re doing two (very useful) things. Firstly, you’re showing the client that you value your products or service at a certain level that will not be reduced – demonstrating quality and integrity.
Secondly, you’re showing the client additional services that you can offer, which could be useful in a later up-sell strategy should they come on-board with you. Offer these additions on a time-limited basis and it’s likely that, once the trial is up, the client will see the service as invaluable and stretch the budget.
3. Show Your Price Reasoning
Address your market research in your response. Explain why you might be more expensive than X competitor (you have more experience, or are a more niche company, for example), and less expensive than Y and Z competitor (less experience, trying to break the market, lower overheads etc).
Positioning yourself above the lowest bracket, but below at least two other competitors, you’ll demonstrate a belief in your products and services which is inspiring. Being upfront about your pricing system against competitors also provides transparency, and clients are more likely to respond to honesty if they’re looking for a long-term partnership with a business.
4. Stand Your Ground
If the client refuses additional items or services, ignores your price reasoning, and insists on a reduction, don’t budge.
You may feel that you’re at risk of losing the project – and that could be quite true. But if you lower your price, you’ll devalue your work in their eyes – so the client will always expect a lower price from you. If you don’t stand your ground, you’re lowering your lifetime customer value opportunities – and this long-term view is what you need to take into consideration here
5. Walk Away
If a client still won’t budge, don’t take them on. It’s hard to turn down business, particularly as a new startup when you feel that you need to take all opportunities that come your way. It’s understandable: you want people to hear about your business, and word-of-mouth referrals are the best way to secure new business.
However, if these referrals also include “it was great – we got the product 60% cheaper than anywhere else”, the new leads will expect similar treatment. It’ll be difficult to prove your worth if you are always devaluing it in order to secure some business.
Your time is just as important as your product. Without it, you aren’t going to earn anything. If you’re stuck in a tricky negotiation when a client insists that you are too expensive, they’re already taking up a lot of your time: imagine what they’re going to be like when they’re paying for it!
(Quick tip: If you’re dealing with another low-budget startup, this is an exception to be lenient – see what skills can be traded with them instead and add these into the deal).
Have the strength and self-belief to value your time and your business more than this difficult potential customer will. It feels unnatural to turn away money – but in the long-term, you’ll have created an opportunity. The time not spent on this difficult customer is time spent building your business elsewhere, or on other client projects.
Remember: if they really, really want to work with you, they’ll find a way.