Don't Drop Your Prices

When a small business hits a tough patch there is a tendency to try a quick fix and the quickest is to drop your prices. Unfortunately, for many small businesses, that's a serious mistake and it is often the first step towards going out of business.

I recently heard of a local web page designer who used to charge $40.00 per hour for his work. Apparently he wasn't getting many orders so he is now charging $25.00 per hour. This strategy has two very negative effects on his business:

1. He now has to work much more to earn the same amount. Not only that, his non-productive costs such as invoicing, administration etc. will now make up a much larger part of his work. He probably has to do about three times as much productive work as before to earn the same amount so, where before he was already short of work, he now has to get three times the number of orders just to maintain his income. His lower price will get him some extra work but not enough. What he'll end up doing is running around like crazy while just scraping by. You see a lot of small business owners like that and it's not the road to success.

2. The other negative effect is in the market place. It doesn't look good for a business to suddenly drop its prices. Does it mean they were overcharging before? This web designer's competitors are going to be asked why their prices are higher and, if they're smart, they will say something like, "Yeah, the poor guy. He wasn't doing too well. Lost a lot of customers although he tried hard. Seemed nice enough. No idea why he can't get any work. Don't think he'll be around much longer." You can be sure customers will not be flocking to try him out when they hear this.

Instead, if your business is down, dropping your rpices should be the last resort. First, look at why your business is down. Are existing customers ordering less? Ask them why. Is it to do with their situation or something you're doing? Are there fewer new customers? Is there a general downturn in new customers or is it just you who are getting fewer?

Once you have analyzed the situation and know what's going on, you can try to fix it without lowering your prices. If it's something you're doing, change it. If it's a general market downturn, find ways of adding value for your best customers which doesn't cost you too much and try to reduce your fixed costs. Try to do more for the same amount rather than the same amount for less.

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