Imagine a situation where you set your price, and you expect to keep this price over time.

If this is an attractive niche and you make good money, you will eventually attract competition. All else equal, this can bring down your price because if someone offers the same transformation this will lead to price competition.

In reality, this is unlikely to happen to small businesses for two reasons:

  1. For small businesses, the market is almost always big enough for multiple players. Nobody has the capacity to serve everybody, so it takes a long time for additional supply to drive down the price.
  2. Two companies rarely offer exactly the same transformation. Still, a similar transformation can impact your price.

The more important takeaway is that price is determined independently of cost. No matter your cost, the market will pay what the market will pay.

Ideally your cost is less than your price. (If it isn’t, you won’t be in business for long!).

As you get better at what you do, however, your cost will come down.

Since cost does not impact price, this means that you continue to make money and, in fact, potentially make more money even as the price decreases.

Another opportunity here is to innovate. Add features, develop new solutions, and add them to your offering. This may increase your cost somewhat, but if it keeps you differentiated and staves off competition, that may be the right strategy.

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