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- The Perils of Underpricing
I just experienced the best $5 sushi of my life. And, technically, the worst business model of my life—but I'm getting ahead of myself.
Picture this: South San Francisco, after 9 PM. Everything—yes, everything—on the menu is $5. Not your typical skimpy portions either. We're talking three pieces of sashimi per order, rolls loaded with fish, the works. I had taken a teammate out for dinner and ordered enough to feed a small sumo wrestling team.
The damage? $65.
I couldn't help myself: when the manager came by to grab my card, I had to ask: "Did you make any money on us tonight? This should've been triple the price for what we got."
His response?
A quiet "No," accompanied by a look that said everything about the harsh realities of underpricing.
That sushi spot is doing exactly what I see countless entrepreneurs do (myself included, once upon a time). We're all guilty of "charge less, give more" syndrome when starting out.
We convince ourselves that "learning" trumps "earning." We get high on the dopamine rush of making customers happy with endless "favors," and diminish our value in the process.
And those favors? They're silent killers. Offer up too many and your business goes belly-up.
When the Math Doesn't Add Up
I learned this lesson the hard way as a first-time founder. We kept being "nice," thinking the numbers would magically work themselves out. Spoiler alert: They didn't.
Instead, we found ourselves in the business equivalent of a hamster wheel:
Not enough margin to hire the right people
Everyone running on empty
Team morale circling the drain
Quality taking hits left and right
A never-ending cycle of sell-lose-hire-repeat
It was like trying to fuel a rocket ship with a garden hose. But the good news is you can learn from my mistakes and avoid making your own with great pricing from the get-go.
A Tale of Two Hotels
Before we go any further, let me ask you something: Would you rather scale a Motel 8 or a Four Seasons?
Same industry. Same basic service. But worlds apart in:
Employee caliber
Team happiness
Customer expectations
Breathing room for innovation
The difference isn't just the price tag—it's the entire ecosystem that price enables. What would it mean to avoid underpricing, even as you launch a new venture (or a business of one)?
Take the case of one of our clients, an executive coach who pulls in seven figures with just ten clients.
Not running around like a chicken with their head cut off or running themselves into the ground. No squeezing blood from stones. Absolutely no favors. Just:
Space to think
Time to deliver what they’ve promised—and more
Room to breathe
Freedom to excel
Proper Pricing: The Oxygen Your Brand Needs
You can't build a lasting brand on a foundation of financial gasping. Your business needs oxygen to survive, just like that sushi restaurant needs margin to thrive.
So, what's the move?
1. Get crystal clear on your costs from Day One. Even if you’ve prepped for launch with some financial cushion, you should do your best to earn right away rather than banking on burning cash for some period of time
2. Decide if you're building a Motel 8 or a Four Seasons (hint: both can work, but you need to know which one you want, so you can adjust your products and services accordingly. They both offer vastly different things to wildly different audiences, and their prices—and pathways to profitability—reflect that)
3. Use "loss leaders" like a scalpel, not a lifestyle. I’m not saying it’s always wrong to take a financial hit in favor of a future win, but make sure you’re as exacting as possible so you’re not hindered by serious scar tissue down the line.
4. Build in room to breathe, grow, and yes—profit. Because at the end of the day, all the brand building in the world won't save a business model that's underwater. Just ask my new sushi-making friends – and perhaps go make their life worse (link here).
What margins are you building into your business to give your dreams the oxygen they need?
P.S. If you're wondering—yes, I tipped generously. Sometimes the best business lessons come with wasabi on the side. 🍱
Join Arcbound and Rohit Bhargava on Friday, Nov 15 at 10 AM PT / 1 PM ET for a thoughtful discussion around authorship. Rohit is a self published, hybrid, and traditionally published author, and now helps other authors publish through his own company IdeaPress.
