No matter what kind of business you run, I have a secret that can help you make money even while the recession has your clients’ wallets shut tight.

To tell you the truth, this secret is a good way to make money any time.

Andrew Carnegie, Marshall Field, Sam Walton, and Henry Ford are among the mega-wealthy who put this strategy to work.

As Michael Masterson has pointed out, it is “behind many – if not most – of America’s greatest fortunes.” In fact, says Michael, “It may be the most important secret a businessman can know, for it is the most powerful and most reliable way to make a small business grow.”

But many businessmen are afraid of this strategy… and many others simply overlook it.

I’m talking about undercutting the competition.

Andrew Carnegie was able to produce steel cheaply. Marshall Field cut the price of retail shopping. Sam Walton’s Wal-Mart started offering food, clothing, and other goods at rock-bottom prices. Henry Ford made automobiles that the average Joe could afford. All of these men went on to make massive fortunes.

Under-pricing your competition is an exceptionally effective way to rake in profits during lean times.

An interesting article in the Orlando Sentinel recently reported on a number of businesses that have been booming during the recession. Now when you think of “recession-proof” businesses, credit repair services and pawnshops are likely to come to mind. But the Sentinel mentioned several “atypical” businesses that are doing well, including a bank, a restaurant, and an advertising agency.

They are all very different kinds of businesses, but they have something in common: Their focus is on saving their customers money.

Even during a recession, there are some goods and services that people must buy. And if you can save your customers money while giving them what they need, you can make a bundle.

Here’s how to use this undercutting strategy for your business:

  • Survey the competition and determine if you can offer the same value for less.

Many small businesses do not even consider charging less for their products and services, no matter what their competition is doing. They settle on a certain price, because they figure that is what it “should” be. And if the economy changes and times get tough, they don’t consider lowering their price, because that’s what they’ve always charged. (Mom-and-pop operations are often guilty of this.)

One of the first successful small businesses I began was a swimming pool maintenance company. When I surveyed what my competitors were charging and calculated my costs, I saw ample room for charging less. Back then, monthly pool service was going for around $45-$50. But I figured out that if I used part-time workers and kept my overhead very low I could charge only $35 and still make a decent profit. When I began promoting my service at that price, I immediately signed up quite a few customers.

I’ve used the same strategy to start other businesses. When, for example, I went into ballroom dance instruction, most studios were charging $60 per hour. But I realized that I didn’t need a studio of my own. By renting space by the hour and also giving private lessons in my clients’ homes, I could charge just $30 an hour. That made dance lessons very affordable for many people who really wanted them, but couldn’t (or didn’t want to) pay $60.

  • Make sure your customers know that the quality will still be there.

Many small businesses have extra “fat” they can trim in order to cut their prices. But before you try to use this strategy to steal market share from your competitors, you have to make sure you can deliver the same quality for the lower price.

The first thing people will worry about when they see your bargain price is that they’ll be getting less in terms of quality and/or service. And if you can’t deliver, your customers will quickly leave you. One way to reassure them is to itemize everything they’ll be getting for the price so they can compare it to what your competitors are offering. (That’s what I did with the swimming pool business.) You should also offer a money-back guarantee. That is a good way to make your customers feel confident that you will offer high-quality products and services.

Undercutting your competitor’s prices is an admittedly aggressive strategy. But the business world is a harsh one… especially in this economy. If you want to prosper, you’ve got to be “Street Smart.”

[Ed. Note: Paul Lawrence is a successful entrepreneur who’s started over a dozen profitable small businesses. For more information on Paul’s “Street Smart” business program, click right here.

Ready to start your own business, but don’t know where to begin? At ETR’s 5 Days in July business-building conference, we’ll give you everything you need to start an Internet business. In fact, you WILL have your own fully functioning business up and running by the time the conference ends. Learn more here.]

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Paul Lawrence

Paul Lawrence is an entrepreneur who has made his living starting and running a series of profitable businesses. One day while cleaning his mother’s pool for a few extra bucks, it dawned on Paul that he could perhaps start his own pool cleaning business. He carefully employed all the marketing techniques that he had learned in school and designed his first flyer. Immediately the business took off and within a week, Paul had his own little business. He quickly expanded, hired employees and then eventually sold it some relatives who made well over $250,000 in the next year before they eventually sold it for a six figure profit.
After finishing college, Paul did a brief stint in a management program for a national rental company, but he quickly realized that he was much happier running his own show. Paul left the rental company and launched one of the most financially successful independent ballroom dance instruction companies in the state of Florida where he received quite a bit of media attention for his revolutionary business practices that included front page features in the Life Style section of the Sun Sentinel, features in the Miami Herald, Boca News, Center Stage Entertainment and many others. With that business running profitably, Paul started several other businesses either individually or as partnerships that included a million dollar video production company, a mortgage brokerage, a home maintenance business, several mail order companies, a business consulting service among others.With a love of movies, Paul began to work at breaking into Hollywood as a screenwriter where he’s beaten the odds by becoming a produced writer. He is a credited writer for the film CRUEL WORLD, starring Jaime Presley and Eddie Furlong and has signed a development deal for a national television series with one of the world’s largest producers of television and films among his half a dozen sales and options of movie scripts he wrote. Paul is the creator of the Quick & Easy Microbusiness program.