Companies often undervalue the cost of their products and services, said Angeline Huffman, founder of HFS Associates, LLC. Many businesses underestimate their worth and do not have the courage to charge consumers the price needed to keep the company profitable.
“You need to have the guts to charge what you’re worth,” Huffman told GBC members in a meeting on Sept. 11. Proper financial management is critical to business success, and that includes accurately pricing the value of your products and services, she said.
Value-based pricing is just one of the strategies companies should consider when pricing their services, Huffman said. Pricing based on operating costs and market supply and demand are also viable options for businesses.
However, each has their disadvantages, Huffman warned. Value is difficult to quantify mathematically; overhead does not account for years of experience; and market price makes it easier for customers to shop around.
When using value to price goods and services, business owners should not worry about cost affecting the customer’s decision, Huffman asserted. “People can always afford what they want,” she said. “If someone wants or needs what you are selling, it has value.”
When implementing value-based pricing, Huffman recommended using cost analysis and market research. Some steps business owners should take when determining their perceived value are:
- Find out client needs and challenges
- Ask the importance of fulfilling the needs
- Understand the benefits of fulfilling needs / negatives of not fulfilling it
- Convert benefits into a dollar figure to quantify service
Failure to understand the value you’re providing, or the value your customer really wants, is a recipe for disaster, Huffman warned. “Just remember: It’s not worth doing unless the price is right.”
Angeline Huffman is the founder of HFS Associates, LLC, an accounting and business advisory services firm, providing cash flow and bookkeeping management to small business owners.