Name Your Price
Charging what you're worth
URL:
http://www.entrepreneur.com/magazine/businessstartupsmagazine/1999/december/18592.html
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.
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)
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.
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
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