From the December 1999 issue of Startups

It's said everyone has their price. But for entrepreneurs, it's not always easy to know what that price should be. Too high and you won't attract customers. Too low and you can't cover your expenses.

Many entrepreneurs undervalue their products or services. Elizabeth Allen, 31, founder and executive director of Awesome Advertising in Kansas City, Missouri, was shocked to learn that farming herself out as an independent copywriter at a rate of $50 per hour was well below the agency norm of $125. Part of the problem was she didn't know enough about her market; the other was that she didn't have the nerve to charge her clients more. Allen has since learned her lesson, one of many she shares in advising other entrepreneurs at the Kauffman Center for Entrepreneurial Leadership, also in Kansas City.

Never underestimate the public's willingness to pay more for a product or service that stands out from the crowd. Doug Wood, 35, and Matt Wolfert, 32, opened their first Treehouse Cuts Salons for kids charging $9.95 for a haircut--about $3 more than the competition. Today a Treehouse haircut costs $11.95. The difference is in the salon's presentation. Each location features a 12-foot artificial tree, styling chairs that look like Barbie jeeps, and Sony Playstations. "Parents are willing to pay a lot of money to get their kids to sit here and not cry," says Wolfert, whose company is in Granger, Indiana.

At one extreme, some entrepreneurs charge as little as possible to gain market share. Others take a risk by pricing high to recoup their investment quickly. A high price tag can sometimes make a product more desirable. When J. David Allen, now director of the John F. Baugh Center for Entrepreneurship at Baylor University in Houston, owned a company that sold dominos for $3 a box--barely above wholesale--sales were disappointing. After he printed them with a design to celebrate the Texas sesquicentennial, buyers snatched them up for $19.95. "The perceived value increased because of our price," Allen says.

But most start-up businesses conservatively hover in the middle range when setting prices, particularly when they're in price-sensitive industries. Before deciding on a price, Lynne Joy Rogers, director of the Urban League's Ron Brown Business Center for minority entrepreneurs in Inglewood, California, advises you know down to the dime what you pay for goods, operations, staff, distribution, marketing and promotion. Then see what the competition charges. "Identify people doing the same thing," Rogers says. "Visit their stores. See how they merchandise their products."

Don't just look, though, says Marie Nahikian, executive director of the Queens County Economic Development Corp., which runs the Entrepreneurial Development Center in New York City. "Buy your competition's product," she says, "and assess not only the cost, but also the quality and service."

Knowing your competitors' prices is invaluable. If they've been in business for a while, it's likely those prices have been the object of much reflection. By thoroughly researching your competition and how they price compared to your best determination of their costs, you can take advantage of their hard-won lessons.

Acting as a secret shopper will reveal plenty about your competition, but try this tactic only when anonymity is assured. Another method is talking to the people most likely to buy your product. Ask what they'd pay for your service or product, and when they would consider paying extra. If customers are willing to spend more for faster turnaround, for example, your price should reflect that. "Your customers have priorities in mind that translate to a certain price structure," Allen says. "Talking to them gives you a better feel for what they value."

It's a lot of work, but it's better to do the work in the beginning rather than change prices on your customers later. Then you'll really learn the meaning of "price resistance."


Julie Monahan writes about business from her home office in Seattle.

Tag it

For more on pricing strategies, check out these titles:

  • How Much Should I Charge? Pricing Basics for Making Money Doing What You Love by Ellen Rohr (Max Rohr, $19.95, 417-753-3998)
  • Power Pricing: How Managing Price Transforms the Bottom Line by Robert J. Dolan and contributor Hermann Simon (Free Press, $40, 800-331-6531)
  • Pricing Strategy: An Interdisciplinary Approach by Morris Engelson (Joint Management Strategy, $50, 800-380-3406)
  • The Profit Zone: How Strategic Business Design Will Lead You to Tomorrow's Profits by Adrian J. Slywotzky, David J. Morrison and contributor Bob Andelman (Times Books, $25, 212-751-2600)

Post It

By Margie Davis

You turn to the Web for information and communication--so why not when you're looking for employees? Posting your want ad on job-search sites like Monster Board and HotJobs.com takes only a few minutes and gives thousands of jobseekers access to your ad 24 hours a day, seven days a week.

Different job sites have different capabilities, but basic features typically include a listing of hundreds or thousands of jobs that jobseekers can look through for free, and a listing of resumes that companies in the hiring mode can sift through at little or no charge. When you post your ad, potential employees who have specified that kind of job by the use of keywords are notified of your posting.

"The best use of electronic recruiting is by companies looking to fill a specialized position, for example, not just `Looking for a sales rep,' but `Looking for a consumer products retail sales rep in Southern California with seven years of outside sales experience,' " says Wayne Outlaw, author of Smart Staffing: How to Hire, Reward and Keep Top Employees for Your Growing Company (Upstart Publishing, $19.95, 800-235-8866). A 13-year veteran of Xerox, where he hired top salespeople, Outlaw says, "The more specifics you can include in your job ad, the better your chances of receiving resumes from qualified candidates."

Job seekers can search for key words in the job title and in the job description, so use exact words and phrases, such as "Controller/Office Manager, proficient in use of integrated accounting software" and avoid vague words like "Office Help." Look at postings for similar jobs to get ideas for composing your ad.

Most job-search sites charge between $40 and $150 to list one job for a month. That's pretty cheap compared to about $250 for a 1-square-inch classified ad that runs once in a major city Sunday newspaper. But print ads are highly targeted, aimed at a specific job category in a specific geographic location. Web sites are more general, spreading a worldwide or nationwide net of job postings in a variety of geographic locations for all types of jobs, many of which have already been filled by the time jobseekers read them. To put your ad in the right place, think about where you would look and which ads you would want to spend time answering if you were looking for the job your company is offering.

The best form of advertising is word-of-mouth; the electronic equivalent of word-of-mouth advertising is e-mail. You can make your online recruiting efforts more effective by using e-mail in addition to job sites. Post your ad in newsgroups, chat forums or mailing lists devoted to specialized topics or regions.

Outlaw says a common pitfall for start-ups is relying too heavily on online recruiting. "If that method doesn't produce candidates they really like, they might compromise and hire someone who doesn't fit what they need." Instead, Outlaw recommends using online recruiting as one element of your strategy, in addition to traditional methods like print ads.


Margie Davis (MDavis1493@aol.com) is a freelance writer and online writing teacher.

Hot Spots

Some of the hottest job sites include:

While the sites above encompass all types of jobs, you can also find sites targeting specific types of jobs (sales, programmers, accountants and so on). Consider the following:

Contact Sources

Awesome Advertising, www.marketsmartz.com

John F. Baugh Center for Entrepreneurship, jdavid_allen@baylor.edu

Queens county Econimic Development Corp., services@queensny.org

Tree Cuts Salons, (888)928 - TREE, www.treehousecuts.com

Urban League's Ron Brown Business Center, laulrbbc@pacbell.net