How To Tell If Your Pricing Is Off
By: Sophia Sunwoo
Tags: Entrepreneurship, Startup, Ecommerce, Money, Pricing Strategy

Versus your sales pitch, marketing funnel, or something else.

Pricing is one complicated cookie.

Entrepreneurs lose sleep over it, overthink it and question themselves, and change their pricing several times because they’re not confident in it.

Here’s the thing though, even with the amount of deep thought and deliberation that goes into pricing, pricing is actually difficult to get extremely wrong.

There’s a lot of simple math and tell-tale signs that make it easy to spot when your pricing is wrong for your business, and a lot of competitor data to use as reference points for market-proven pricing.

Here are the three tell-tale signs that signal that your pricing may be wrong for your product and business:

Drop Off Before Add To Cart

I love selling products online for the simple reason that you can see data slices from your marketing and sales funnel and see which parts are doing well and not.

If you don’t have a shopping plugin on your website that shows you conversion rates at each part of the sales process, do this now.

If you track your sales manually, set up a system that records it.

This data should show how many people visited a particular sales page, how many viewed your product, started checkout, and then actually purchased. This plugin should also allow for an abandoned cart feature that sends an email when someone puts a product into their cart but abandons it before purchasing.

With this data in hand, you should also know how many engaged followers you have on other mediums like your email list or a high-converting social media platform.

When analyzing your shop’s data, if you see that shoppers are enthusiastically clicking on your sales pages and viewing your product, but not putting your product in their shopping carts, then it could mean either your sales copy or your price is stopping them from taking action.

If you know that your sales copy is strong and an unbiased third-party says the same, then it’s likely your price that’s stopping shoppers.

If your audience size is on the smaller side, less than 200 engaged subscribers on your email list, then it’s very likely that your audience size may be too small to convert yet.

However if your engaged audience size is 500 or up and shoppers are dropping off right before adding your product to their cart, there’s a strong probability that your sales copy or price has something to do with it (to figure this out, tackle your sales copy first and if that change doesn’t work, only then should you change your pricing).

The key here is to look at whether shoppers are putting your product into their shopping carts or not.

If that conversion percentage is pretty below your industry-standard (Google average add to cart conversion rate for your industry), then it means that your sales pitch or your price is a bit off and not compelling shoppers to even think about purchasing your product.

Your Competitors Don’t Have Your Prices

If you don’t see any other small businesses (notice I said small business and not all businesses) with your price points and you’re struggling to make a sale because your price is too high or too low, then you may have a trust problem on your hands.

Competing with your competitors on price is definitely a sales tactic you can use effectively, but it doesn’t work if you do not provide education as to why your prices are so much higher or so much lower than your competitors.

Customers distrust pricing out of your competitors’ ranges if you don’t take the time to explain why or what you do differently.

If you provide education to your customers and cultivate a relationship with them, but still aren’t able to make a dent in sales, you either have to revisit your branding and marketing or reassess if your pricing is right for your audience segment and industry.

If competitors of yours have the same or pricing within your ballpark and you still can’t bring in sales, then it’s likely that you just need to get more leads into your pool, improve your customer cultivation strategy, or work on improving your sales pitch.

You’re Losing Money

If you’re not making a profit for every sale, then you absolutely need to change your pricing.

If you’re losing money because you need to hit a specific minimum before turning a profit, ask yourself this:

Is the minimum you need to hit before turning a profit reasonable and achievable within 2 years? Or is it more like a 500,000 unit, 5 year path?

If you’re a VC or angel investment-backed company with investments allowing for some breathing room until you turn a profit, then you’re in the clear.

However, if you’re self-funded or funded through other means, you need to fix your pricing so that you become profitable as soon as possible.

It’s really easy to lower your prices, but difficult to increase them.

If you find that your pricing cannot support a profitable business, raise those prices now. Don’t wait. Holding on to customers who won’t pay your prices will just leave you within that pricing bracket forever.

By ripping the bandaid off and raising your prices to where it needs to be quickly, you’ll have more time to build an audience of customers who will pay your prices, rather than undertaking the (mostly impossible) task of asking shoppers who chose you for your low prices to change their behavior and pay more.

If raising your prices is not a possible move, mercilessly slash your operating costs or negotiate lower product costs until your pricing can help you turn a profit.

If you’re constantly losing money in the first years of your business, you’ll never make it past year 2. Set yourself up for success so that you can make it to year 5 and actually be in a place to change your pricing how you please.