Tweet

Discounting Prices: How Low is Too Low?

Written by: Chris Simpson

Article Overview: Setting prices can be quite a challenge for any business person. Whether you are a new business or you've been in business for a long time, it can be difficult to know where to set your prices. After all, prices that are too high can make you lose customers, but when you get profits that are too low, you can end up losing money as well.

Discounting Prices: How Low is Too Low?

Setting prices can be quite a challenge for any business person. Whether you are a new business or you've been in business for a long time, it can be difficult to know where to set your prices. After all, prices that are too high can make you lose customers, but when you get profits that are too low, you can end up losing money as well. While you want to make sure that prices are low enough to keep your customers interested, it may be hard to realize how low is too low. Here are a few signs that your prices are far too low.

Sign #1 - You're Not Profiting on the Product - One of the big signs that should let you know that you are discounting your prices too much is that you are not profiting on the product that you are trying to sell. If you discount your product too much, you'll soon find that you are not making much money at all on your products. While you want to keep prices low for your customers, if you go out of business because you are bankrupt, you won't do anyone any good. So, if you are not profiting, the price is too low.

Sign #2 - All Costs Haven't Been Taken Into Consideration - While you may have thought about the actual cost of the product, if you haven't taken all the costs into consideration, you may be pricing your goods too low. You have to remember that there are more costs to consider than just the cost of the product. There is shipping, processing fees, delivery, and the cost of service as well. So, even if it may seem that you are selling the product for enough money, you may find that you haven't taken all the costs into consideration and you are still losing money.

Sign #3 - You are Selling at the Absolute Lowest Price - Another sign that you are cutting prices too much is that you are selling products at the absolute lowest price out there. Offering competitive prices is great, but if you make your products the lowest price out there, you'll almost guarantee that you're going to lose money. After all, people shop for more than the lowest price. So, this could be a sign that your price is too low.

Sign #4 - You aren't Adding Value - If you aren't adding value to the product you're selling, then you may be selling it too cheap. You should work on adding value to your product in some way instead of just discounting the price more and more, since this can take a toll on the profits that you are making.

Sign #5 - You Begin to Lose Customers - Notice that you are losing customers in spite of low prices? Well, your prices may be too low. Sometimes customers see that prices are too low and think that the products are not high quality, so they go somewhere else for the products that they need. So, don't price your items so low that people are afraid that they are not of high quality.

Related Articles
  Why Discounting is Hazardous to Your Business
  Why discounting is bad for business
  Build Value Not Discount To Avoid Becoming A Commodity in Your Industry During Good or Bad Times
  Real World Advice for Retailers - Loss Prevention, Chapter 3
  Small Business Coach - Do Your Pricing Strategies Maximize Your Profits?

Article Tags: business person, enough money, long time, money sign, much money, new business, profits, shipping, signs



Related Forum Posts
Different Types of Funding - Finance for business can be obtained through a number of different sources. Let's review some of those channels to help you decide what's right for your business needs: Grants There are over 930 different EU and UK grants and loans available from over 100 issuing bodies. This is the cheapest form of finance and an important part of the funding package that companies and individuals need. We can help you find your way through this maze. Technology Micro Projects: 50% of eligible costs up to £20,000 Research project: For a technical and feasibility study of an innovative idea for new technology 60% of costs up to a grant of £75,000. Development project: For development up to pre production 35% of costs up to a grant of £200,000 Developing an innovative idea: valuable for small companies and individuals at the start of a technical project: 75% of costs of hiring a mentor and consultants. Export To start exporting or moving into new markets grants of 50% of costs up to £20,000 each. Training and Education Knowledge Transfer Partnerships, Achieving Best Practice in Your Business, Investors in People Modern Apprenticeships New Deal for various grants. Environment BOC Foundation for the Environment: 25% to 50% of Project cost, typically £20,000 to £100,000 Clean up Fund: Emission reducing equipment up to 75% of cost Community Chest Fund: Up to £25,000 for projects near active SITA sites High Impact Fund: £150,000+ for larger projects near SITA sites Assisted Areas Regional assistance grants of between 10 and 35% for capital expenditure in less favoured areas of the UK. Loans Loans are an excellent source of finance if you have suitable security to borrow against or a reliable earnings stream. This needs to be planned and presented well to obtain funds. Credit cards Provides up to 56 days free credit if you play the game! Overdraft Banks are surprisingly supportive when presented with a well thought through plan and competent management. Bank Loans Lenders tend to look for a good business plan and security. Typically the loan is approved by a centralised back office function rather than the person you meet. Terms and rates depend upon the risk. Repayments can be very flexible to meet your specific needs. Mortgages These can include flexible repayment terms to meet your business needs. This can even be incorporated into your overdraft finance so that you have one flexible account for both personal/ business mortgages and overdraft Small Firms Loan Guarantee Scheme Up to two years trading: Up to £100,000 Over two years trading: Up to £250,000 However these are difficult to obtain and are a loan of last resort. Export Guarantee Scheme This is government backed insurance against appropriate export documentation. Mezzanine This is a halfway house between loan and equity. It can be an innovative way of raising funds for the more established business. Mostly for expansion capital. Equity This is not as easy as the papers would have you know. Only 1% of business plans received by Venture Capital Funds are successful. However, a good business proposition consisting of a strong demand for the product or service, management track record and a sound financial plan will enhance the chance of success. Business Angels These are high net worth individuals who are successful businessmen looking for investment opportunities. They can provide both time expertise and money. Typical investment size is £25,000 to £250,000 but can go as high as £2m for the right opportunity. Exit within 3-5 years. Venture Capital These are investment funds seeking high rates of return. However typically investments are over a million pounds. Some funds are targeted at lower amounts depending upon the sector and region. These funds are looking for exponential capital growth over 3-5 years. Asset backed finance This can cover machinery, sales invoices even sales orders. It can be a very flexible source of finance to the growing business Leasing This will cover your capital expenditure and spread the cost over a three to five year period. It is particularly useful if you do not have taxable profits to maximise your capital allowances. Sale and leaseback of a property you own is another good source of funds. Factoring Factoring offers a sales ledger administration and debt collection service. Up to 95% of an approved sales invoice is paid within 48 hours, quicker if required. Credit protection is also available to protect against a bad debt. The Factor will own and place a first charge over the book debts and they might also take other charges, depending upon the strength of the financial information. Invoice discounting Invoice Discounting can be Confidential or Disclosed; it depends upon the strength of the financial information. The service is the same as Factoring, except that the sales ledger administration and the debt collection is the responsibility of the client and not the Factor. Pre payment of the approved sales invoice is still up to 95% and the factor will still have a first charge on the book debt and therefore own the debt. This service can also have credit protection cover. All sales invoices need to be for a business to business debt, and some proof of delivery is generally required. Trade Finance This is funding provided against stock purchases, signed contracts and orders whereby the funder will prepay a certain percentage of the value Pension fund It may be possible to use your pension funds for a loan back to the business What do u think about it?


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

10 Steps to a Great Support Team

Halloween Howl Seven by Author Paige Agnew

What is Discretionary Cash Flow

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.