The second pricing option you have is to price your products or services at almost the same rate as your competitors, but reduce your overhead as much as possible, thus raising your profit margin. If your competition is based in an office or storefront and you are working from home, you are automatically saving on those lease and commute expenses and therefore lowering your overhead and raising your margin of profit. Now find a wholesaler (in the case of product sales) who will offer you a better rate or figure out a way to create bulk sales to other companies/individuals and you've cut your expenditures for stock and lowered your shipping while increasing the number of units sold.
There is a problem with discounting though...value. You have to make sure your prices still create a perception of good value. In other words, don't discount so much that the potential buyer loses faith in your product's quality or your professional abilities to provide a good service. You'll shoot yourself in the foot by lowering rates too far. After all, everyone wants to believe they run with the "big dogs"; that means an attorney who charges $250 an hour will be perceived to be "better" than the one who charges $50 an hour...even if the $50-an-hour attorney simply does so because he works from home and has virtually zero overhead. You may be doing your clients a favor, but you'll lose the perceived value if you don't stay in the league of your competitors. (Still want to cut favored clients a break? Bundle services into packages, such as wills for husband and wife for $350 when normally you could charge $500 for each individual.)
Advertisers are the same way. If you offer them "cheap" marketing opportunities in your e-zine or on your website, what will their perception of your traffic value be? There's a fine line between "a good deal" or "inexpensive" and "cheap" or low quality.
I believe it's essential for every business owner to review their rates at least annually and consider adjusting them (either by raising prices or lowering them). In the case of the print publication I worked for, rates went up each spring for advertisers. Don't forget that raising rates also offers you an opportunity to solidify your relationship with your "VIP" clients. Customers who have been making purchases with you for a long time or who repeatedly bring you referral business will appreciate hearing the phrase, "Our rates just went up but your price remains the same." This is an excellent tactic for closing the sale when it's time to renew their annual service contract, frankly. If your fees are going up due to creating a higher perceived value, rather than a climb in overhead, you'll still have plenty of profit margin to work with and you'll have a tangible "gift" for your block of best customers.
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