Charging right price may increase profits

Backed by a strong economy, 13 percent of small businesses reported raising prices in the first half of 2000, according to the National Federation of Independent Business, more than doubling the 1999 figure of 5 percent.

"When the economy is particularly good, you can often raise your prices and let some customers go and still be more profitable overall," said Lisa Thompson, director of consulting services at Strategic Pricing Group, a Waltham, Mass. consulting firm.

But determining what the market will bear is always tricky.

Choosing the right price does more than help determine how much you earn, it also can convey much about a firm’s abilities, experience and expertise.

"If you went to a doctor and he said it would cost you $500 to take out your appendix, you would worry about him," said Sarah Maxwell, a marketing professor and director of the Fordham University Pricing Center, a think tank.

Here is some advice from a variety of sources:

Target your services. Focusing on a specific sector of an industry minimizes competition and gives you cachet.

Negotiate the project, not your prices. Don’t lower your fees for price-sensitive clients. Accommodate their budget constraints by providing a reduced level of service that will cost them less. "If you backpedal on your price, (customers) know they’re not based on anything real, and you will continue to see a spiraling down on your prices," said Robert Middleton, owner of Action Plan Marketing, a consulting firm in Palo Alto, Calif.

Avoid quoting a fee at the first meeting. Give yourself time to think about a project and the amount of time and energy it will require before naming your price. Underbidding is a common and easily avoided mistake.