Seven Biggest Mistakes in Setting Prices

Written by Brad Sugars of entrepreneur.com.

One of the biggest challenges for any business is pricing.

This applies not only to a start-up, but also to well-established businesses, especially those in lower-margin, highly competitive industries. The common theme with most pricing issues is risk: risk setting prices too high and you may push potential customers away; risk setting prices too low and you cut profits.

This "pricing paradox" drives most owners to default to discounting. However, risk in most cases can be eliminated by getting better information. Generally, the more you know, the less risk you perceive. From that perspective, pricing is all about getting as much information as you can about your market, your customers and your own internal numbers that drive your profit.

As I like to say, there are no secrets in business, there is just information you don't know yet. When it comes to pricing, here are seven ways to avoid mistakes in your start-up. If you can avoid these, you'll not only be ahead of your competition, but also you'll be ahead of most other businesses.

Going in too low and undercutting all the time. For some businesses, this isn't a mistake, it's an entire strategy, and it's not a very good one. Going in too low all the time might be great for your top-line revenue number, but it wreaks havoc on your bottom-line profit number -- the one you will need to survive.

You need to profit and price accordingly. You might not get business out of all of your price-conscious customers, but that's OK. Your competition will -- and then they will have to figure out how to profit from the "price shoppers" when there is little or no profit to make.