Dear Startups – Never under quote your initial projects

The first few days of a startup are really testing. You have just launched your startup and are eagerly waiting for the first few clients and are willing to bend over backwards to acquire and service them. It is especially common in the service industry for young startups to either yield to excessive bargaining or underquote their price extremely low just to acquire the client. It is understandable too as you are desperate to make a mark and you don’t want to let any chance go. So you quote the price you think the client will pay and not the actual cost. Well, DON’T. It is a big mistake for young startups and here is why – 

• Diminishes your value/the value of your service – if you finally close a deal at 50% the cost that you had initially quoted, you/your service lose value in the eyes of the client. No client would simply assume that you are working on zero margins or doing this just to get the budget. But they will be happy to assume that you had over quoted by a margin of 100%, were trying to rip them off and that they were able to get an awesome discount. This would mean that you would never be able to work with this client at the right price ever again.
• You lose money/confidence – trust me on this that an undervalued project is always going to be a loss making one for you. The moment you realize that your project is not going to yield anything your motivation to give your 100% will go. Simply saying, we are driven by incentives, take away the incentive and with it goes the motivation. Being confident about ourself is the biggest asset of us entrepreneurs and of we lose that we put a lot at stake.
• Any reference/repeat business would come at undervalued price – any increase in subsequent costing would be perceived as markup and no client would be happy to oblige.
• Adds more steps to getting profitable – once you have delivered a project at a low cost than it actually incurred you would take some time to slowly increase your billing to the right price and then only you can go any further. This is the time where you lose profit. Lost time, lost money.
• Support will drain you – support is proportional to the size of the project and not the cost. And you will have to provide support if you don’t want to lose face in the industry. When a client asks for support whose project was already loss making for you, you will have to do it even if you don’t want to. Maybe in the beginning you will oblige but remember with time you are going to get busier and the work of your paying clients will suffer because you are providing support to a loss making project. In this point I am simply assuming that you have also under quoted for support or worse providing support without support contract. Trust me, startups do that.

I am the co-founder of a services firm and trust me all of these lessons come from experience. An undervalued project always ends in relationships ending with a sour note. I know we get desperate and just want to grab whatever we get. But let’s try to stay confident about ourselves and our abilities and make sure that we always get the right value of our efforts.

Note : This is an original post from my blog which you can find here. I tweet at @akhilrex

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