Question: I read your pricing a business question and I wanted to know if I should be adding a little more to the price to leave room for negotiations?
Submitted by: Timian
Answer:
This is a question that we get asked very often, and it is one that we feel quite strongly about. Though we can see the intent behind ‘upping’ your price to leave room for negotiations it is actually not something that we would generally recommend.
Though we have written blog articles regarding this issue (see Pricing Your Business: Why leaving room for negotiation can leave you out of pocket.) here is the short answer:
Overpricing your business will most often result in locking out enquirers in your price range and inviting enquirers from a price range above your own.
The buyers in the higher price range that you do attract will see your figures and either not make an offer because the business is to small for them or because they don’t feel comfortable making an offer so far below the asking price. The buyers that actually are in your price range will be significantly less likely to enquire as the business is not affordable to them.
So effectively what you are doing when you overprice your business is attracting buyers that would not be interested in buying your business, whilst pushing away buyers who would be.
What you’re much better off doing is coming up with two figures in your head: the highest reasonable price you’re willing to accept (your asking price) and the lowest price you’re willing to accept. The distance between these two prices would be your negotiating room.
To summarise, ideally you should aim to advertise your business for a price that is foreseeably what someone will actually pay. In the past, businesses that we’ve sold, that sold the quickest for the total original asking price, were the ones that were priced correctly. When they’re overpriced they end up staying on the market for much longer, becoming stale and eventually either not selling, or selling for well below a reasonable price.