Prices and Offers - Part 14: Step by Step Into Self-Employment on the Net
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| Prices and Offers |
What do you offer on the market and how should you best structure your range/range of services.
On the other hand, it is about calculating your prices. Here, too, many start-ups make mistakes that sooner or later take revenge.
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[Overview of the article series " Step by step into independence on the Internet "]
Range Planning
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| Prices and Offers - Part 14: Step by Step Into Self-Employment on the Net |
“Assortment” sounds a bit strange, at least in the ears of service providers. But of course, these also have a certain range of offers, which should be well thought out.
In part 3 of this series of articles “ Planning, goals and the business plan ”, I explained in connection with the business plan that you should of course plan your range of products.
And at this point, many start-ups first take the right step. They analyze their skills and use them to develop a range of offers.
Service providers define, for example, a list of services that they offer. One should not make this list too extensive, but neither should it be too short. It is therefore important to check during the market analysis which demand is available for which service.
Ideally, you offer just as many services so that you are fully utilized and still have a “sharp” range of services. The advantages of a "clear" offer are:
- You position yourself as an expert, the more specialized your offer is.
- By doing relatively few different things, you develop more routines and get better / faster at what you do.
- Greater specialization often means that you have fewer competitors and can charge higher prices.
- Specialization usually also ensures that you have to work less overtime.
Vendor's Tray Strategy
The problem with this is that many start-ups do not find enough customers for the original range of services in the initial phase, and this often goes on over the first few years.
And unfortunately, that very often leads to the “vendor's tray strategy” being used. You simply expand your range of services with new offers, for example, because an existing customer needs something else.
I also made this mistake at the beginning of my self-employment. I also designed business documents for my website customers, looked after the computer technology, and offered other services.
In the end, this led to the fact that I did work for many customers in which I was not 100% fit and which simply cost more time as a result. I just wasn't doing it so efficiently that it would have been worth it in the long run.
Of course, that doesn't mean that you shouldn't work on your range of offers. It is very natural and also important to develop it further. But you shouldn't make the mistake of offering all sorts of other services too quickly, as this often destroys the advantages mentioned above.
But I see this again and again with “classic” self-employed people. For example, a metalworker who specializes in carports and garages. Meanwhile, he does all kinds of “mental stuff” which has the consequence that he complains about the broken prices and the big competition.
Range Adjustment
It is therefore important that you regularly analyze your offer.
You should not only evaluate the income from individual services or products but of course, also the effort invested in each case.
Only then can you judge how profitable service is and which one should no longer offer.
How Can You Calculate Your Prices?
Of course, the prices are closely related to what is offered.
Unfortunately, the mistake is often made here of defining prices too quickly without having considered all the factors.
There are different ways to determine your prices. You must know your costs very well. I wrote a lot about this in the previous part of the article series.
In addition, there are some pricing strategies.
Pricing Strategies
In the following, I would like to introduce some possible strategies how to find your prices.
However, it is important for all of the following strategies that the bottom line must be enough to consider all costs and make sufficient profit.
Competition
Many start-ups initially orientate themselves towards competition and then set their prices. On the one hand, this is understandable, but it also brings with it some problems.
So this strategy usually leads to the fact that one wants to stay below the price of the cheapest competitor. This sets off a downward spiral as other start-ups in this industry are doing the same.
Should you discover that there are too many competitors with interchangeable services in your industry, it is more important to work on your range of services. Otherwise, you get into a price war that only brings disadvantages.
Low Price Strategy
With the low price strategy, you try exactly what I wrote in the point before. One tries to tap the customers with the cheapest price on the market. If you offer products it may still work by going above the crowd and thus also having very low purchase prices.
As a service provider, the low-price strategy is usually not the right choice and only means that you never get green.
Medium Price Strategy
The medium-price strategy is often found and promising if it is implemented correctly. One does not try to reach all customers, but only those who are willing to pay a reasonable amount for certain services.
Here it is important to develop certain unique selling points that prevent you from being too easily comparable.
High-Price Strategy
Luxury is a segment that can be worthwhile. By deliberately choosing a high price, you need relatively few customers to be successful.
However, it is extremely important here to have a very attractive USP that sets you apart from all others. And the quality delivered is also very important. An example from practice is certainly Apple.
“Foot in the Door” Strategy
This is also known as a penetration strategy and is not just the common practice of new internet startups. In the beginning, you enter the market with a low price or even free of charge to achieve a good market share as quickly as possible.
This can also be an opportunity for service providers to gain many customers in a short time and use them as references, for example.
The challenge of this strategy is that you have to enforce higher prices later, which is often not so easy. And you need a financial cushion for the beginning.
Loyalty Strategy
The previous strategy works particularly well when you offer services or products that make the customer loyal to you.
These can be regular services or regularly required additional products (coffee tabs for coffee machines or printer cartridges).
I know a lot of tradespeople who want to get orders with dumping prices only to get paid for the regular maintenance later.
It generally makes sense to offer services and products that will keep the customer loyal to you in the long term.
These pricing strategies are certainly the best known and are the most widely used. Often there are also combinations.
It is important to think about which strategy works best in the long term.
Alternatives to Price Dumping
There are some ways to prevent price dumping.
How to prevent the price war that is often caused by the vendor's tray strategy, I have described in the article “ Finding customers without a price war - 2. Alternatives and solutions ”.
The main focus is on the following points:
- Being Able to Say No
You also have to learn to reject orders. This is quite difficult, especially at the beginning, but it is a prerequisite for becoming profitable. - USP
You should set yourself apart from the competition. This can be done by changing details so that potential customers cannot simply compare prices. Or you are looking for real “ blue oceans ” and avoid the competition completely. The latter, admittedly, is not that easy. - Offer a Bonus
Instead of going down with the price to get a customer, one should rather try to put services on top of it for free. On the one hand, this has the advantage that customers feel that they are getting more for their money. And customers don't get used to low prices that are difficult to get up again later. - Branding
Even as a self-employed person, it is important to make a name for yourself. Gradually you should have positioned yourself as an expert for certain services, which makes it easier to enforce higher prices. - Recommendations
With this is of course closely the recommendation Marketing together. This is a very good way of acquiring new customers. The biggest advantage here is certainly the leap of faith and the lower price relevance.
What Should One Earn?
One often hears the saying “Enough to live” from entrepreneurs when asked how much they want to earn.
But that's not the right attitude. Because as a self-employed person, life is usually much bumpier and the goal should be to earn enough that you can put something back.
Because a lot can happen that can cause the income to decline or to dry up completely:
- There are order fluctuations in almost every industry. Be it seasonal or economic fluctuations, for example.
- New competition can certainly cause problems and it takes patience to get through such phases.
- If you or your employees get sick, this can lead to a drop in income. See also the article “ Will your business survive your illness? "
- The costs also fluctuate. I have just that time again in the year when the tax office not only wants the additional income tax and sales tax to be paid but also increases advance payments for the next year. And not to forget the trade tax etc.
- Anyone who “forgets” to put money aside for such things will experience a rude awakening.
- etc.
There are many reasons why it makes sense not to just earn enough to make ends meet. You should always aim to earn significantly more in “normal” times than you need to live.
And then of course you should build up reserves and/or use the money to establish additional pillars of income.
Conclusion
The nice and at the same time hard thing about self-employment is that you have all the opportunities, but of course all the risks with your income.
That is why one should think long-term both when planning the offer and when determining the price and take possible risks into account.
On the other hand, those who simply go into self-employment using the “I am the cheapest” method will very likely not survive long.
So It Goes on
Part 15 of the article series Step by Step into Self-Employment on the Net is about marketing. “He who doesn't advertise dies” is the popular saying.
Which marketing methods make sense and how should they be approached.
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