Cape Town - In this week’s entrepreneur corner small business coach Anton Ressel talks about the tricky issue of how entrepreneurs should work out the correct price for their services and products and not sell themselves short.
“I think where most entrepreneurs really struggle around charging fair prices.... it's a confidence issue,” says Ressel.
He says that many entrepreneurs, as the "new kids on the block", feel obligated to be cheaper than the established competition.
But he adds that this approach may undervalue the advantages that entrepreneurs bring to the market, particularly in the realm of customer service.
“The better service that you give – if you work overtime, if you work after hours, if you come in on a Sunday – that’s all going to cost you more, because you are going to have to pay your staff overtime etc,” he says.
“So if you are providing that sort of level of service and delivery to your client, you are entitled to charge more for it. I think this is where a lot of entrepreneurs struggle.”
He advises entrepreneurs to not try and compete established business on price, quality and service at the same time.
“Entrepreneurs have to be conscious of which two elements that they are going to really own,” he syas.
Moeshfieka Botha: It is 2018, and entrepreneurs are still undercharging. They seemingly don’t know their worth and don’t know the value of their products or services. With us in studio we have resident business coach, Anton Ressel, who is going to help us unpack this, so that we can have entrepreneurs charging what they are worth and making money.
Entrepreneurs are passionate, enthusiastic, wanting to make a difference in the world – but the trap that entrepreneurs always seem to fall into is the one of undercharging. Why is that and how can it be fixed?
Anton Ressel: You summed it up very nicely when you said it’s about making money, and the reality is this: why do you start your own business? Why do you go into becoming an entrepreneur? Why do you leave your job, to open up something of yourself – whether it is a passion project, whether it is something that follows your skill? It’s because you want to make money, isn’t it?
I think where most entrepreneurs really struggle around charging fair prices for their products or services, is around a confidence issue, with many entrepreneurs saying "I’m the new kid on the block, so I’ve got to be cheaper. I’m not proven, I don’t have a well-known brand name, therefore I can’t charge what other people charge. I’ll go in at a cheaper level until I have proven myself. Once I have established myself and proven my worth, then maybe I can start charging market related rates for my products and services".
MB: That’s not necessarily saying that entrepreneurs don’t have confidence within their products or their services. Entrepreneurs very often lack confidence within themselves.
AR: One of the biggest elements of the work that I do as a business coach is actually around that very topic. It’s helping people find and recognise their own strengths and what they bring to the table.
Usually what we do find is that with an entrepreneurial-based, or a smaller business, as opposed to a larger more established concern – is that entrepreneurs often bring a lot more to the table than the bigger guys, where you are just a number. (With the bigger guys) it’s more like, “We’’ll come out on Thursday, because we don’t have anyone to come before then”.
Entrepreneurs will drop everything at the drop of a hat.
MB: Entrepreneurs work 24/7. If you call them out on a Sunday, they’re there – always wanting to prove themselves. There is sort of a triumphirate of elements within the entrepreneurial space. Let’s chat about that.
AR: Essentially, how any based business can compete (whether it is an entrepreneurially based business, a corporate, or whatever it might be) is on three elements - namely price, quality and service.
Accepted business practices is that you should choose two, and really own them – and basically the third one will fall into place.
What entrepreneurs, and especially new entrepreneurs try and do is to compete on all three.
So in essence, they try and give you the very best quality in terms of their product and service. They try and give you superior service, so they will come out at 11pm at night. They’ll even come out on a Sunday, or commit to be there tomorrow morning.
Thirdly, they’ll try and give people the best price as well. Essentially then, those three elements – price, quality and service are in friction with each other. The better the quality, or the service or the product that you provide - the more expensive it’s going to be for you to provide it.
The better service that you give – if you work overtime, if you work after hours, if you come in on a Sunday – that’s all going to cost you you more, because you are going to have to pay your staff overtime etc.
So if you are providing that sort of level of service and delivery to your client, you are entitled to charge more for it. I think this is where a lot of entrepreneurs struggle. They try and compete on all three of those elements, and usually it’s to the detriment of themselves.
Entrepreneurs have to be conscious of which two elements that they are going to really own.
One has to say “ I’m going to give fantastic service and I’m going to give the best quality in my products or services, but I am going to charge for it – and that’s OK.
Alternatively you know, I’m going to give very good quality, but from a service perspective I’m going to sort of hold back a little bit. I’m not going to work after hours or overtime. I’m not going to work on a Saturday or a Sunday, but you know I’m going to give you a better price as a result, and that’s also OK.”
Entrepreneurs need to know their strategy around charging, they need to know what they are worth and actually own it!
MB: In terms of knowing it and owning it, they should also know how to cost it. I find that also to be a huge problem in the entrepreneurial space. People do not know how to cost their time, how to cost their effort or how to cost their expenses. With a result the pricing is completely skewed. They then sit back and say “Well, we’ve made no money”.
That never works for anybody.
AR: I should actually have a T-shirt made that says “Costing is everything” or “Know your costs”. I am very passionate about this. Infact, I’ve done a lot of research and homework on it over the years. The reality is this – how can you give a price to a client for a product or service, if you don’t know that it costs you? It’s completely irresponsible to you, your business and your sustainability – if you are just winging it, if you are just thumb-sucking or going on what the market charges without really understanding you your costs.
The truth is, a lot of entrepreneurs don’t know where to start. There are actually, quite a lot of practical tools out there that people can access, in order to understand that your cost – is essentially your time, your labour, your raw materials and your overheads. If you can work out those elements, it’s not so difficult to know what what something truly costs you to deliver.
MB: We will be unpacking all of this as we go further into 2018. Dear entrepreneurs – know your worth, know your costs and let’s make money in 2018!
Did you find this useful? We need your input to identify your most pressing issues. Send us your questions. Our resident coach Anton Ressel or one of our experts will answer as many as possible in future shows. You can also engage with us on Fin24's Twitter and Facebookpages. Look for our hashtag, #EntrepreneurCorner.
Missed it? Here's some of our previous episodes.
- #EntrepreneurCorner: Delegating for success
- #EntrepreneurCorner: Surround yourself with smart people
- #EntrepreneurCorner: Incubators require commitment
- #EntrepreneurCorner: Upscaling is about your customer
- #EntrepreneurCorner: Don't obsess over protecting your idea
- #EntrepreneurCorner: Why it's crucial that you pay yourself first
- #EntrepreneurCorner: Make it easy to do business with you
- #EntrepreneurCorner debuts: The funding conundrum
* Sign up to Fin24's top news in your inbox: SUBSCRIBE TO FIN24 NEWSLETTER