We’re living in an age of startups truly, madly and deeply. There’s no denying the startup bubble exists loud and clear, and it is one bubble that isn’t going to burst anytime soon. India is the youngest startup nation in the world. 72% of the startup founders are less than 35 years old. Surprising isn’t it?
Also, the nation’s home to the 3rd highest number of startups; 4200-4400 being an approximate number. When startups are in the picture, numbers gain all the more importance. And it all begins at project pricing?
Pricing a project is one boulder which never stops resurfacing. As every client is a different specimen altogether, it becomes extremely difficult to be confident while deciding what the overall number should look like. Hence, most top managers and financial experts recommend that you define your own value first, the value of your work, and then accordingly move ahead with a consistent price chart for everyone.
Falling in A Client Spiral
However, its not all black and white here. There’s a huge grey area which is what takes up a lot of time, effort and energy. These are those clients who don’t have a lot of background information of. How profitable is their domain? What must be their monthly profits? How old is this company for real? Are they spendthrifts or cheap? What’s their technical knowledge quotient like? Have they researched the market all too well? How desperate they are for getting the work started? How have their past experiences been? The list of such questions is endless. We’ve tried to cover most of the parameters that are in consideration when pricing for a particular project is due for declaration.
This is often a tricky stage wherein if you underprice, you might lose a lot of value and if you overprice, you might lose the client altogether.
It is often seen though that startups don’t hesitate in underpricing their work, products or services. Be it rise in competition or a way to single yourself out; at the end of the day, numbers don’t lie. Why has it become a general consensus though? Let’s find out.
1. They Don’t Know Any Better
Well, this is kind of self explanatory, isn’t it? This is because most startups having been out there in the real world enough. They don’t know any better than to underprice themselves time and time again just because it works. Oh, we’re bound to crack this just because it worked for us the first time as well.
Even if the success rate is high, what’s the end result? Would you rather have 10 clients to satisfy paying you 5000 a month each or 3 clients paying you 17000 each? Its not just about the Math. Imagine the effort and the energy and the mental headspace that will go into satisfying 10 different minds than just 3 in the other scenario. Now we’re not saying that there are so many clients out there with such deep pockets; however, you wouldn’t know without trying, would you?
2. Unaware of Their Own Value
Even though it might not seem like it, but this is the most common reason why startups underprice work. They don’t know how valuable their man-hour is. What’s a man-hour? A man hour is basically the price of an hour long work period of your employee who’s working on a particular project. So, if 3 of your employees are working on a weekly task for 2 hours; it means that it is costing you 6 man-hours in total. Capiche?
Ergo, if you know this number accurately, everything becomes streamlined. A man-hour isn’t just defined by the quality of work though; it is defined by the monthly employee salary, rent of the resources being used, electricity, security, etc. And there aren’t enough diligent companies out there with a clear idea of how much a man-hour should cost. In such cases, it becomes very easy to underprice. Always the safer option!
3. Not Enough Market Research
If you don’t delve in the market enough, how would you really know what works and what doesn’t? It’s a classic case of not knowing enough. I’ve seen smart salesmen send out requirements and business proposals to differently-sized companies just so they can get their portfolios and price charts and use them as references. Agreed, this process takes time but you ought to start somewhere though. This is a sign of lack of experience clearly. A whole lot of conviction is needed to stand up for what you believe is right; not many startup founders are of the same ilk though.
4. Empty Pockets
This is kind of a no brainer. Startups underpriced work because their pockets aren’t that deep. Because every penny is important, which is not the case for medium or large sized businesses. This is one way of standing out from the crowd, by giving unbelievable numbers for quality services. Quantity over quality doesn’t always work though. What startups fail to realize is the end game, is that they wouldn’t want to be known as a ‘startup’ for decades to come.
5. Build Portfolio
What does under pricing do – the project starts sounding attractive all of a sudden. What happens then? The probability of a ‘yes’ increases substantially. Hence, startups underpriced just so they don’t have to listen to that dreaded ‘no’. This way, the portfolio grows stronger and this work can then be pitched to other clients of the same domain, keeping the ball in their court. This is true for almost all startups out there, especially in the most initial stages. You can’t disclose during the first few client meetings you handle that you have hardly 2-3 folks who pay your wages. Doesn’t quite send the right impression, does it?
Under pricing Vs Overpricing
I personally would always go for the latter as it exudes conviction, confidence and everything positive. Sure you’ll catch less flies, but the ones you do, will shell out more honey than the depleted ones. Basic Math at the end of the day!