How to Lose a Sale…by Charging Too Little

May 17, 2007  

I learned an interesting lesson many years back: Charging too LITTLE for your goods or services can price you out of a sale. Let me explain.

I was with the management consulting firm Accenture for 15 years. Back in 2001, I left the company to become a “professional speaker.” Although I had been giving speeches since 1992, I had no idea how to start a speaking business.

At that time, I was living in England. One week after starting my business, I met with the owner of a speaker’s bureau in London to discuss representation. We spoke for a while, he watched my videos, and he expressed serious interest. During our conversation, we never discussed my speaking fees – and I had never even thought about what I would charge.

A few days later he called me about a potential gig. The call came in to my cell phone as I waited for a train. It was difficult to hear him due to the noise on the platform.  However, I did hear him ask the dreaded question – “What is your speaking fee?” I honestly had no idea and had never thought about it. I did some quick calculations and then pulled a number out of the air. “Thirty Five Hundred” was my response. He thanked me and hung up.

A day later he called back. I quickly realized that he too must have had a hard time hearing me during our previous conversation, because he asked me, “Was that Thirty Five THOUSAND dollars or Thirty Five THOUSAND pounds ($70,000)?” I stumbled for a moment, debating how to answer. I then sheepishly responded, “Thirty Five HUNDRED DOLLARS.” Again, he thanked me and hung up.

As you may have guessed, I did not get the speaking gig. Although I will never know for sure why I was not chosen, I did discover that the person they hired was paid $35,000! I learned a powerful lesson that day. Your price often determines the PERCEPTION of your credibility. Under-pricing can often imply low value.

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12 Responses to “How to Lose a Sale…by Charging Too Little”

  1. Dean Stafford on May 17th, 2007 12:04 pm

    Stephen,

    I found this to be very true as well. I’ve a graphic design/sign business and, when I started out on my own in 1997, I’d no idea what to charge; so I played the “undercut” game based on my own less-than-glowing self-assessment. Through the years, as my fee has increased–in addition to my experience–my sales have increased. Let me explain.

    While standing in line at a local drugstore, I saw a perfume that was wildly popular only a few years ago. Undoubtedly, it had experienced a significant price reduction. It occurred to me that the introductory pricing had to be in line with its competitors (or even higher) to create the perception of elegance and affluence, actually creating demand. Now that it’s been committed to the drugstore ranking, you can’t give the stuff away.

    I coined this the “perfume syndrome.”

    Of course, there are business models that present this and certainly supply and demand are at work. But it was an ah-ha moment for me that is a blatanly obvious aspect of the perfume industry.

    So, as long as what you do “smells” sweet enough, set your pricing in line with your competitors, or, perhaps more importantly, with whom you want your competitors to be. Your customer will then attach that perceived value to your product.

  2. Robin Bal on May 19th, 2007 9:33 am

    Good post mate, I believe sticking to your price does pay, don’t sell yourself cheap, let people know that good things come at a better price. I have been in sales all my life and know of many salespeople discounting to make the sale. Discount it once and you will be doing it always, why? because you will feel that unless you rebate you will not make that sale. Make them pay what you are asking for they will even have more respect for you.

    For example, OMEGA SEAMASTER, special offer @1000, I will never buy it, there is probably a catch.

    Take care and cheers.

  3. Susan on May 21st, 2007 8:37 pm

    Excellent post, how true for all aspects of sales. I believe whole hartedly that we are all salespeople no matter what we do, so the moral is never underestimate what you are worth or what your product is worth.

  4. Steve Roesler on May 22nd, 2007 12:12 am

    Stephen,

    Good post for anyone who aspires to sell profitably.

    After 30 years in consulting, the only bad experiences I’ve had are those early on when I under-priced to get business.

    The business that I got was worth the same in the long run.

    Price yourself thoughtfully and profitably, then stand your ground. If not, you’ll resent the sale that you do make.

  5. Stephen Hopson on May 26th, 2007 5:38 pm

    Stephen:

    The impact of this article was absolutely stunning! I experienced a similiar thing during the early days of my speaking career.

    I can remember literally shaking in my booties when I was asked to quote a price and I thought anything over $750 was too much. Imagine that Stephen!

    I now quote my prices right on my speaking website for all to see, so that there’s no misunderstandings.

    Clever article Stephen. Thanks for sharing.

    Stephen Hopson

  6. Andy on June 7th, 2007 8:23 pm

    Good article. This shows that sometimes a company or person is losing profit by simply not trying to get more for their product or service. It also shows the importance of doing research when it comes to setting prices. Sometimes, psychology is very important in sales, people will spend more on an inferior product because of its perceived value.

  7. Eolake on June 13th, 2007 10:38 am

    [I've blogged this]

    Did you regret not simply answering “dollars…”?

    A friend of mine, when he was young, did a job, a few hours as a pro photographer in NYC. (He’s English.) He thought he was being paid $300, got a check for $3,000, and went back and said “this must be a mistake”. The guy said, “sorry, that’s all we pay”. So what the heck, he took it.

  8. nextSibling on June 15th, 2007 1:36 pm

    Years ago, young and innocent in my first job after school, I worked in a small shop in an affluent area of London. One afternoon the owner of the shop arrived, walked around looking at the prices, turned to me and said “I want you to re-label all the prices 20% higher”. He could tell from my expression that I was confused and simply added, “If they’re not complaining about the prices, you’re not charging enough”.

  9. Javier on June 30th, 2007 11:38 am

    Stephen Great Article:
    Very interesting!. Now with new competition from all over the world. One key thing is the price. How we manage to counter the lower price this is a key idea.

  10. Increase the Price - Increase the Pleasure : Stephen Shapiro on Innovation, Creativity, Goals, Performance & Thinking on January 18th, 2008 8:11 am

    [...] wrote a blog entry entitled, “How to Lose a Sale By Charging Too Little.” In it I describe why charging too little reduces the perception of [...]

  11. Verhoog je prijs voor meer plezier | Erno Hannink on January 23rd, 2008 6:03 pm

    [...] er een andere spreker was gehuurd en deze heeft US$ 35.000 ontvangen voor deze presentatie. In de reacties op dit artikel vind je op Shapiro’s blog nog meer vergelijkbare [...]

  12. Verhoog je prijs voor meer plezier - Erno Hannink on July 22nd, 2012 4:40 am

    [...] er een andere spreker was gehuurd en deze heeft US$ 35.000 ontvangen voor deze presentatie. In de reacties op dit artikel vind je op Shapiro’s blog nog meer vergelijkbare [...]