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Owning It: Small Business
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11 common reasons small businesses fail

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A poor pricing strategy

What consumers tell market researchers they are willing to spend doesn't always sync up with reality. Until you test your pricing in the marketplace, it's hard to tell if potential customers will actually pay what you plan to charge.

One reason entrepreneur Jordan Malik believes LookTrade failed was that there were cheaper solutions for setting up an online auction than what it offered. "If people wanted a customized solution, there were options that cost about $19.95 a month; our solution was in the thousands," Malik said. While he and his partner debated whether to revamp the business model, the start-up petered out. "We were so determined, we burned through our cash," he said.

Another common hazard is failing to price a company's offerings in a way that allows a profit. With many services becoming commoditized in a more global, digital marketplace, it can be tough to raise prices, but doing so can be essential to staying profitable and surviving. In an April survey of small-business owners by PNC Bank, 74 percent of respondents predicted consumer prices would rise in the next six months—and 37 percent of small businesses said they planned to increase their own prices, too. The average projected hike was 1 percent to 2 percent.


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