Whether you are a well-established business or a startup, pricing will always be one of your biggest challenges. This is especially true in lower-margin, highly competitive industries.

Set your prices too high and you "scare" away potential customers. Set prices too low and you'll cut your profits. Even experienced entrepreneurs struggle with this pricing paradox - maybe you're one of them? Here are my top pricing mistakes - and how to avoid making them:

Undercutting all the time

Going in too low all the time might be best for your top-line revenue spinner but it can destroy your bottom-line profit number, which is often the most vital to business success.

You need to profit and price accordingly, which might mean you won't get all the most price sensitive customers on board. This is not all bad news as they will probably defect to your competitors who then have the unwelcome challenge of deciding how to make a profit from items where there is little or indeed no profit to be made.

Using the same margin for all products

There's no rule that says all products need the same margin. In reality, slower moving items need higher profit margins. You can afford a smaller margin based on high sales volume. Even then, you should find ways to add value and increase those margins. In the end, even those incremental increases over time will make a big difference to your bottom line.

Not taking ALL your costs into account

In order to price correctly absolutely every cost needs to be identified. Even "little" things like credit card processing fees, which typically add 1 to 2% on every transaction, add up over time. If you are not charging for delivery, or not charging enough, then this "cost" can easily build up. View these costs as diligently as you would your cost of goods sold. They certainly have a huge impact on your bottom-line.

Setting sales commissions based on sale prices vs. percentage of profit

For companies using a commission-based sales force, this is similar in scope to the margin/mark-up distinction. Commission based on the top-line vs. commission based on the bottom line directly impacts profitability. Profit should be the only number that matters. Paying commissions out of revenue streams can mean you are literally giving away your company to your sales team.

Discounting instead of adding value

Discounting takes a big toll on profits. For example you are offering a 10% discount, typically you will need to sell 50% more units to keep the same profit on the bottom-line. Costs also increase in the "discount" game, so companies can literally discount themselves out of business. Instead of discounting, ask yourself if there is a way you can add value to your product or service.

This "value added" proposition means you can "give away" something that won't come out of your profits. Done right, it can also add to the experience your customer has of both the transaction and your company. A great experience is key to getting that customer to return – a necessity to a highly profitable business.

Pricing Paradox

Avoiding pricing mistakes and being strong in your pricing proposition go hand-in-hand in building a profitable business. Master the so-called "pricing paradox" and you will master an area of business that even the most experienced entrepreneurs find challenging. Once you do, you'll be confident that your products and services have value, and you'll effectively position yourself against competitors.