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Brendan Egan

Do Small Businesses Price Their Self Out Of Business?

Small businesses are great — they’re really the backbone of America and part of the American dream — but so many of them price their selves right out of business.  They have a lot of knowledge about their business, their product, and their costs/revenues, but they forget one critical thing: their profit margin.

I know this all too well as I’ve done the same thing over the years — I don’t want to be that greedy guy at the end of the day with a pocket full of money because I charge 3 times more than I should for my services.  But at the same time, by the time uncle Sam takes his share (and a big share at that) and I pay all my expenses, I would end up making a lot less than I want to.

It’s a problem with small businesses, and it’s a problem many of my SEO clients are facing right now.  They have trouble covering their marketing costs because their profit margin is just too low, or because they’ve held their prices steady for the last 5 years.

Prices of everything are going up — from food to gas to clothing — everything is rising due to inflation and cost of living adjustments.  I have an old cell phone bill from 5 years ago that was like $40 a month, today I pay over $100 a month for one line.  Gas 5-8 years ago was $1.50 a gallon, today it is well over $4 a gallon in most areas (especially here in Chicago!).  Prices rise over time, and even though you’re a small business, your prices should rise as well.

Companies like Coke and Pepsi account for their marketing costs when they sell their products.  A 12 pack of Coke or Pepsi is what about $2-$3 depending on the sale, but I once read it costs them a few cents to make that item.  These companies have enormous marketing budgets — how many times did you see a Coke or Pepsi commercial in the last week, or during a huge event like the Superbowl?  They price their product based not on their cost to produce, but based on their anticipate overall costs including taxes, marketing, salaries, etc.

Small businesses try to stay ethical and honest which is why I believe they offer their products and services at prices lower than they should.  But at the same time, many small businesses are pricing their selves right out of business.  I have one SEO client considering closing up shop — and I’ve urged them to explain to their clients that they’re having a price increase effective immediately — because I know they provide a quality service that 95% of their clients will pay a little more for.

The bottom line is this — when it comes to running a small business, don’t short change yourself.  It’s so easy to do — and quite honestly it’s something we used to do when working with SEO clients and web design clients (good for you, bad for me), but it’s important to charge a fair market price and a price that covers your costs.  You put a lot of time and energy into your small business, and people will pay a little more for that high quality that they can only get from a small business.