A few years ago, Vlasic Pickles teamed up with Walmart to sell a gallon of pickles for the unheard of price of $2.97. They sold over 240,000 gallons of pickles a week. Vlasic loved the sales numbers, only to discover that profits were shrinking by 25% or more, since they only made a penny or two of profit on each jar. Vlasic filed for bankruptcy in 2001.
This story highlights a vital point. In general, we want to price with a goal of maximizing profits, not sales volume. Too often, business owners look at gross revenues (sales), when the net profit is what really matters. We could have sales of $250,000 a year, or $1 million, and be losing money. More sales do not necessarily mean more profit. Having sound accounting and analyzing financial reports regularly are essential. It’s important to remember that profit is not a dirty word. A business must earn a profit to stay in business. Whether a particular business’ profit is fair or is excessive is another matter – that could be the subject of another article!
Why Women Underprice in Their Businesses
Underpricing is a common problem for women entrepreneurs, which happens for several reasons, one of which may be that we don’t know how to properly set a price that will yield a fair profit. Another reason is we often undervalue ourselves and our product and/or service. Furthermore, many of us have concerns about fair economic access to our products and services.
Pricing Basics
The first problem of understanding the best way to approach pricing one’s product or service is solved by getting sound business advice, which is readily available through organizations like SCORE and local business development centers or business coaches and consultants.
There are many methods for pricing for service businesses, retail operations, and manufacturers. Going into many of them would be too extensive for this article. However, the basic parameters are easily set. Costs determine our lowest price and must include overhead expenses, marketing costs, R & D, etc. Demand and competition determine our highest price.
Self-Worth
Another reason for underpricing is that we often undervalue ourselves. It’s only in the past decade or two that women have been business owners in the large numbers that currently exist. Most new business owners, whether male or female, do not have extensive prior experience in running a business. Women have the additional challenge of overcoming our internalized devaluation of ourselves, especially in the business world. We may feel unqualified or undereducated. Where men might have the tendency to understand and properly value (or sometimes overvalue) their product or service, this is usually not the case with women.
Article comments
1 - Joanne Huspek
Underpricing is not limited to females in this tough economic time. I speak from personal experience.
2 - John Peterson
I remember the vlasic crisis... had they been focused on profits and not numbers of gallons sold, they would have been much more successful.