Ernesto is a very capable, hard-working entrepreneur who has been painting houses for eleven years. He started as a helper, learned the trade from a demanding master painter, and three years ago he made the decision to open his own residential and commercial painting company. His work is excellent and his customers always recommend him.
One Tuesday, a homeowner asked him for a quote to paint the outside of her house. Ernesto went over happily: he measured, checked the wood on the eaves, explained to the owner that it needed scraping and sealing before painting, and the next day he sent his quote: $3,400.
But the homeowner didn't take long to reply, with a message that said:
No business owner wants to get a reply like that, and not everyone is ready to handle it. Ernesto did what almost everyone does in that moment: a quick calculation, colored by the slow month he was having and by the fear of losing the job. And he answered:
The homeowner was very happy and gave him the job. And that is where the ordeal began, because the 800 dollars less was the smallest of his problems.
What happened after the "yes"
The homeowner, pleased with how well she had negotiated the price, kept asking for new things. Could he also paint the railings, since he was already working there? Could he finish a day early?
Ernesto delivered on all of it, because that is how he works, and because a satisfied customer is worth gold: his business depends completely on his customers' reviews and referrals. But when he closed out the job he ran the numbers: between paint, sealer, supplies, his helper's wages, insurance and gas for the truck, that job cost him $2,200. At $2,600 he was left with $400 for five days of work.
Five days with a full schedule and an empty wallet.
And the worst part wasn't that job. It was that, from then on, Ernesto started quoting lower before anyone asked him to. "The competition is cheapening the work and I can't afford to lose jobs," he told himself.
The cheap-price trap
Lowering your price is tempting for a very simple reason: it is the easiest thing in the world, and it is what everyone does. It doesn't require you to think about what makes you different, how to position yourself in your market or how to attract the kind of customer you want. You don't have to explain anything or convince anyone. You just put down a smaller number and the magic happens.
And for that same reason it doesn't work as a strategy, and it can destroy your business.
When you compete on being the cheapest, you aren't promising the customer anything new. You are simply offering the same thing as everyone else, only cheaper. And the saddest part is that there will always be another business owner who, just to break into the market, is willing to charge less than you. That list never ends: every year new companies come in with the same strategy, to replace the ones that closed because charging so little became unsustainable.
Charging cheap is almost never a strategy. It is fear by another name: the fear of being told no.
Ernesto didn't lower his price because he did an objective analysis or because his productivity had gone up. He lowered it only because he was afraid of losing the job. It is understandable and completely human, but it is the most expensive mistake a new business can make.
A price isn't calculated: it is decided
Most business owners set their prices like this: they add up what it costs them, put a little on top, and glance sideways at what the competition charges so they don't go over. Yes, I've done it too.
The big problem with this method is that it treats price as if it were just a calculation. And price is much more than that. Your price is the first thing your customer knows about you, often before they meet you, see your work or read a single recommendation.
It works in both directions:
Your marketing changes your price.
Your price changes your marketing.
That's why, before you ask yourself "how much should I charge?", it pays to ask yourself other things: what do I offer? What problem do I solve? What makes me unique? How much demand is there for what I do? And above all: what do I want the customer to think when they see my price?
In this series we'll look at five ideas that change the way you set a price. Each one has its own article. Here is the essence.
Your price is a signal
A lower price doesn't earn you more trust
Free and paid work together
Your margin defines your marketing
You can raise your prices without losing your good customers
What Ernesto did
Ernesto didn't raise all his prices overnight. He started with something simpler: he stopped sending a bare, unconsidered number.
Before, his quote was a message with a figure. The customer had nothing else to look at, so they compared the only thing they could see: the number. And in that comparison, Ernesto always lost to somebody.
Now he sends a proposal. In it he explains what the job includes: scraping and sanding where the paint is loose, repairing damaged wood, sealing before painting, the type of paint he uses and how many years it holds up in the sun, how many days the job will take, how he protects the plants and windows, how he leaves the house when he's done, and the written warranty. None of that is new. He had always done it. The difference is that before, nobody knew until the job was finished.
The second thing that changed was how he reacts to the message that used to terrify him: "someone else will do it cheaper." He no longer lowers his price. He just answers something like this:
That answer achieves something a discount never will: it hands the decision back to the customer, but with clear information about what they will get, how, when, and what sets it apart from others. At first some went with the other painter. But several called him back months later, to fix what the other one left half done or for new projects, this time Ernesto's way.
The customers who stayed, on the other hand, pay his price, haggle less and recommend him more, because they can explain why they chose him. Ernesto paints fewer houses a month and earns more on each one. With that margin he hired a second helper, and for the first time in three years he can quote a job without having to leave another one half done.
It isn't about being expensive
None of this means you have to be the most expensive in the market (that has its own risks). It means your price tells a story, carries information and has to be a decision, not a reaction to fear.
The same goes for you. If you know what you do better than others and who you do it for, your price stops being a number to defend and becomes an essential part of what you sell.
I'd rather explain my price once than justify the whole job five days straight.
