today I want to share with you an
epiphany I had about pricing because as
it turns out the perfect price does
exist especially if you know what you
should be selling in the first place
what many entrepreneurs don't realize is
that without a clear pricing strategy
you can do mieux self to failure meaning
that even if you get everything else
right if you pick the wrong price to
sell your product at you can make things
so difficult for yourself that you have
this huge self-imposed obstacle that's
almost impossible to overcome
that's why pricing is something we
should all spend some time getting right
so to explain to you this epiphany I had
will need to do some good old back of
the napkin math and to do that I'm going
to need a napkin to scribble on and it
needs to be big enough so you can see
what I'm doing so I need to go find a
place where I can do that so this here
is gonna be our napkin it looks almost
like a flip chart I know so we're going
to think about pricing and when we're
thinking about pricing we need to start
with the right question and a good way a
smart way to think about pricing is to
think about what does it take to earn
$10,000 so that's what we're going to
think about it's like how many do I have
to sell how many copies how many
products do I have to sell to make
$10,000 and how many people do I have to
reach I'm choosing $10,000 because they
can represent many milestones it can be
making your first $10,000 it can be
making ten thousand a month ten thousand
a week ten thousand a day but in any
case the right question to ask will
emerge from here and let's start with a
low price let's say I'm selling an
information product at a low price let's
go with five dollars so five dollars
that's what one copy of my ebook for
example costs and right away we can tell
is at a price point of five dollars we
need to sell 2,000 copies sell 2,000
copies in order to make $10,000 now here
comes the first point point number one
is what I call the big draw we have to
realize is we have to think about well
what's the conversion rate going to be
on a $5.00
product and the first thing we have to
realize is that any price anything that
is more than $0 will make the conversion
rate plummet right any even if it's
$1.00 if it's 10 cents in fact the
conversion rate between $1 and $5 is
probably going to be more or less the
same the biggest difference the big drop
happens as soon as you charge any amount
of money and that's because charging
money having to pay money represents a
really big obstacle you have to you know
you have to fill out forms you have to
trust someone with your payment data you
have to maybe dig out a credit card copy
in the numbers and so on and also for
some people just coming like oh this
payment system that you're using isn't
supported in my country or I don't have
a credit card or whatever so as soon as
you charge any kind of money you'll see
a big drop in conversion rates so for
giving something away for free and maybe
asking for an email address as an opt-in
thing you can get double-digit
conversion rates right you can get 10 20
30 depending on how warm the traffic is
you can get high conversion rates as
soon as you charge any amount of money
you'll see the big drop so what is a
possible conversion rate here and again
this is you know rough ballpark math
right let's say you get a 5% conversion
rates that is assuming you don't have
like super hyper targeted traffic but
also it's not just cold traffic such a
shock on traffic and your sales page is
doing a good job five percent that's a
decent performance here now had a five
percent conversion rate this is the
problem this is why we're talking about
reach at a five percent conversion rate
you have to reach 40,000 people
okay 40,000 people need to come to this
sales page for you to make 2,000 sales
for you to then make $10,000 off of
those 2,000 sales okay
40,000 people that's important because
we often think oh I can lower the price
if I sell a cheap product that's gonna
be easier right but 40,000 people trying
to reach 40,000 people that is a big ask
and on any platform in any way right
trying to post something on social media
that gets 40,000 views trying to post a
YouTube video
like it's 40,000 views trying to build a
mailing list of 40,000 people trying to
get 40,000 people to a sales page that's
that big ask how are you gonna do that
how can I find 40,000 people to bring to
your sales page and you think about how
much work that is to reach an audience
of this size then the payoff of $10,000
it's like well is that worth it
the amount of work I have to put in here
to make $10,000
I don't know this brings us to point
number two which is let's think about
reach and let's reduce the reach
required to make this money
so let's experiment with a different
price let's do let's bump up the price
to you know range of 50 to $100 50 to
$100 it's more or less split the
difference and do $70 now explain why 70
in a moment so $70
we're selling a product for $70 now and
at this price point we need 143 sales to
make $10,000 143 sales now of course
that's way less which is good but we
have to think about this reach again now
what happens to our conversion rate if
we go from $5 to $70 let me tell you the
ballpark figure first and then where it
comes from so here a conversion rate
that is in the realm of possibility will
be 2.5% all right 2.5%
now the reason I'm using $70 in this
example is that I'm currently selling a
product that sells of an average of $70
and the real conversion rate on that is
two point four four percent so this is a
realistic conversion rate at this price
point I'm not just making stuff up
now at this conversion rate we have to
reach five thousand seven hundred and
twenty people what five thousand seven
hundred twenty people to make ten
thousand dollars so you see what
happened here we we more than tenfold
increased our price but our conversion
rates only about half and as a result
the required reached required audience
reach goes down dramatically
so right away it's much easier to
imagine doing the work needed to get
roughly six thousand people to see my
sales page to make ten thousand dollars
and I don't know about you but right
away when I see this I would much rather
do this I'd much rather do the work
again
six thousand people to see my sales page
to buy a seventy dollar product so I
make ten thousand dollars then trying to
find 40,000 people the reason this is
happening the reason we're seeing this
here is point number three the
conversion slope so the relationship
between our price and our conversion
rate is not linear and in fact it is it
runs across a slope so let's have a look
at that so let's make a simple graph
here we've got a price going from cheap
to very expensive well you've got a
conversion rate going from high to low
and first of all what we already saw is
there's a big draw so if our price is
super low our conversion rate can be
very high right we give away something
for free and what happens is that
there's a massive drop that happens to a
$1 price now I don't want to use up too
much of this scale so let's just say the
drop goes until here all right and then
from here what happens is that the slope
as the price increases goes something
like this
there are two aspects to this slope the
first is that it's it's kind of a gentle
drop-off and it slopes down like this
and so it's not a 45-degree angle right
it's not a linear relationship where if
I have my price it will double my
conversion rates and I end up making the
same amount of money the second is that
there's certain psychological price
point certain psychological barriers
that would be less than ten dollars or
more than ten dollars less than a
hundred more than a hundred and so on
this is why we always see price tags
like 999 because if you charge $9.99 Ted
of ten dollars and one cent even though
the price difference is almost
non-existent it will be like a steeper
drop right there there's just a
psychological barrier but the most
important thing is to realize that
you know doubling our price generally
doesn't have our conversion rate and
vice versa but this slope means is that
as we increase the price in terms of how
many people we need to reach it tends to
develop in our favor higher price means
I need to reach fewer people to make
$10,000 let's go back to the original
napkin alright so if that's true if I
can increase the price and I have to
reach for your people like let's just
crank it all the way up right let's do
like two thousand dollars what if I
charge two thousand two K two thousand
dollars for my product well what happens
well right away we can see something
pretty interesting happens I only need
to reach five people now or rather I
need to sell a five copies right I need
to sell five times this two thousand
dollar product to make ten thousand
dollars and right away it's like wow
five people I can probably can maybe
think of five people I can try to
convince to give me two thousand dollars
each so it makes it a lot easier but
what happens with the reach because
obviously convincing someone to hand
those two thousand dollars is gonna take
more work so what happens to the reach
is well even if our conversion rate
drops by a lot let's say we can only
convert one in a thousand people right
so let's hear a conversion rate goes to
0.01 percent we can only convert one in
a thousand people that means we need to
reach 5000 people and well once again
that's lower than what we had here and
you know this is this is a big drop you
can probably put together a good sales
page you probably get a bit more than
that right so it still holds true as I
increase my price I need to reach fewer
people to make $10,000 but this is where
the next point comes in point number
four is what I call the logistics
problem so new graph real quick for the
logistics problem here's the thing right
if I'm selling a product for five
dollars then there is not that much
production needed to go into that let's
think about if you buy a book for five
dollars and the e-book is not very well
formatted you know it's not the most
beautiful thing you've ever seen but it
contains like one or two good tips then
that's fine right you're probably a
happy customer spend $5.00 got a kind of
crappy e-book but learn one or two good
things from it all good now if you buy
something for that $50 $70 $100 your
expectations rise and you want to see
better production quality you want to
see more something more unique something
more valuable and if it's just a crappy
PDF with one or two good tips you're not
going to be a happy customer in other
words on the product creation side as
the price goes up the amount of effort
it takes to put together an offer that
will work that will make people happy
and that will people will buy in other
words putting together an offer that
justifies its price point requires more
and more work so if we look at this
graph here we have low price - very high
price and we have little - lots and our
first line here the blue line is going
to be the product worth the amount of
work you have to put into production to
make a product that justifies its price
point so it starts not at zero right
even making the cheapest of all products
takes some work but what happens is
something like this probably exaggerated
that a bit but the point is it starts
increasing and as you get to a really
high price this amount of product work
needed goes up drastically
so it should probably climb a bit sooner
or more like this but you get the point
right it's a line like this where if you
you know I sell a cheap product I have
to do some work I sell a slightly more
expensive product I have to do a bit
more work but at some point in order to
sell a $2,000 product your design has to
be on point your sales copy has to be on
point you have to have a lot of trust
signals your product itself has to be
super valuable super unique people
require or expect really high quality
service and one of the things here is
remember how in the last video I showed
you how I made all the sales material
for my course using just like a GoPro
you know simple low production quality
no problem well good luck trying that
for a product that costs thousands of
dollars there are some things that go
into making a super high end product
that you cannot just do by yourself
overnight right people before they will
hand you $2,000 you have to establish
trust with them they have to be able to
see a history of your work they have to
be able to see that this is a
trustworthy person is trustworthy
business behind this and this is not
something you can just create by
yourself so the logistics problem is
basically that if you want to sell
something for $2,000 you probably need a
team but you probably need a team of
people to help you with design copy
marketing production customer service
and so on and so while it's possible and
it can be very beneficial and very
profitable it's not very solopreneur
friendly and it's certainly not suitable
as like your first business or to start
getting something off the ground now the
other thing that we've seen here is the
audience work so the red line on this
graph is going to be how much work does
it take to reach the audience that we
need to make our $10,000 and as we've
seen this is a line that slopes down in
some manner right the reason I made this
graph the interesting thing about this
graph is if we have we look at the price
and product work and price and audience
work it leads us to point number five
the sweet spot so at some point on this
graph there's a sweet spot where we can
reduce our needs to reach a huge
audience without having too much work to
do for the production and that sweets
but looking back at all the products
I've sold at all the different price
points I think that sweet spot is $200
so $200 and that is especially true if
what you're selling is an online course
so selling an online course for $200
puts you right in that sweet spot so
let's quickly do the math here on our
napkin for a $200 product what that
means is we need 15 sales we need 50
sales of a $200 product to make $10,000
now like I said I'm selling a $70
product right now real conversion rate
2.44 percent I'm also selling a $200
product right now real conversion rate
to point
four percent so as you can see this is
the slope in action right the conversion
rates let me put that here let's just do
two percent right rounded down a bit the
conversion rates here are pretty damn
close together even though the price is
almost triple that is the slope in
action and that means that our required
reach here becomes three point five all
right two thousand five hundred people I
need to reach two thousand five hundred
people to make ten thousand dollars and
this is why the sweet spot is two
hundred dollar product for an online
course because reaching two thousand
five hundred people it's not something
that's going to just happen by accident
or overnight right but it's the kind of
thing that you can do by yourself you
know put in a bit of elbow grease do a
bit of hard work you can reach two
thousand five hundred people and the
same is true for the production quality
needed to make a two hundred dollar
product so to make a product that
justifies a two hundred dollar price
point where you'll have happy customers
that buy this from you and low refund
rates that is something that if you have
a good system you turn your expertise
into a course you can do by yourself and
all the marketing and so on as I showed
in the last video is also something you
can do by yourself without needing
massive production quality so this is
our back of the napkin math and the
sweet spot for what to sell and what
price at let's go back to the studio to
wrap things up our mission here at Drive
themes is to help entrepreneurs and
small teams build better more successful
online businesses what I've realized
from many discussions I've had with
customers and fans is that in many cases
is not just about how you build your
website it's not just about what you do
to drive up conversion rates on your
site it's much more about what you do
what you sell and how you sell it
foundationally i noticed that many
entrepreneurs try to start businesses
that are too complicated and too complex
to start out with or put themselves in a
position where as we saw in the low
price example where in order for this
business to succeed they have to reach
absolutely gigantic audiences and that
just makes it incredibly difficult often
these discussions come down to me saying
hold on before you do all that take this
knowledge you have package
as a course and sell that because that's
something you can do in a relatively
short time span and selling a course can
give you a platform it can be a
foundation on which you can build other
things see this is what I did as well
with thrive themes yes I found it
writing a software company but I didn't
start with that and frankly there would
have been no way for me to start thrive
themes as my first business I built the
necessary marketing skills the necessary
entrepreneurial skills the experience
and I earned the money that was needed
to start a business like thrive themes
by selling courses first in so many
cases that's just the best way to start
even if you have other ambitions and so
to close this off let me give you one
little bonus inside if we think about
the napkin math we just did maybe you're
thinking of that $2,000 price point that
was pretty attractive right I mean think
about only having to make five sales to
earn $10,000 that is really attractive
but like we saw there is the logistics
problem well in many cases for many
businesses having a really high ticket
item having a very expensive item to
sell is a great business decision that
can often be the thing that kind of
takes you you know to another level in
terms of revenue and success so it's
absolutely something worth doing and if
it is something you want to do if you
want to get to that point where you can
make a high ticket item like this there
is no better way to get there than to
create a couple of $200 courses first
once you've created and sold a few $200
courses you'll have this experience
where you know how to put together a
high value course you'll have refined
your ideas and your teaching you have
learned teaching skills that make for a
high value course you'll have marketing
skills you'll have customers ready to
buy more from you it is such a good
foundation so even if you want to go for
the higher price even if you want to
follow this principle of reducing your
required reach by cranking that price up
all the way that's definitely a good
idea to do but starting by selling one
or several $200 courses is the fastest
way to get there all right that's it for
today's video I hope you found this
useful and here's my question for you
what is a topic that you could make a
200 dollar course on if you have to
start building a course right now what
topic would you pick and what questions
do you have what challenges to
let me know by leaving a comment below
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