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I was recently working through some marketing strategies with one of my coaching clients and we got onto the topic of pricing. She really wanted to make a push to increase her sales in the short term and wanted to decrease her prices and have a sale as a promotion.
I told her that I didn’t think that it was a good idea. There are better ways in which you can offer your customers more value with different strategies such as bundling. But first I wanted to walk her through the numbers to show her why I didn’t think a sale was her best option.
Unfortunately I haven’t always seen it this way and have made similar mistakes with my own companies in the past. But now that I’ve worked through the numbers and see the math, I definitely focus on other marketing strategies.
I’ll spend some time in other articles to talk about different strategies, but for now I’m going to walk through the steps I showed her that explain why I don’t like the idea of using a sale to add value to your customers.
The real key to success in marketing is to offer more value than your competition. Prospects will pay twice the price if they believe they’re receiving four times more value. Unfortunately, most businesses in a vain attempt to increase their value begin to offer discounts, and that often destroys their margins.
Would you believe me that in some businesses if they discount their price by a mere 10%, they now have to sell 50% more just to break even?
Let’s look at an example:
If you sell a widget for $100, and you have a 30% profit margin, you make $30 for every widget you sell. That means your cost basis for that widget is $70. If you discount that widget by 10% and sell it for $90 instead of $100, your cost basis is still $70. Now you are only making $20 in profit instead of $30.
For this business to make $1,000 in profit selling their widgets at $100 each, they would need to sell 33.3 widgets ($30 X 33.3 widgets = $1,000). But by discounting their price 10%, now they need to sell 50 widgets ($20 X 50 widgets = $1,000). They now have to sell 50% more widgets just to get back to their original profit margin. (33.3 X 1.5 = 50).
But consider this… when was the last time you saw a business offer a measly 10% discount? Most of the time they offer 20% to 40% discounts… and wonder why they are going broke. And to add even more bad news on top of this already bleak scenario, did you know that the latest research shows that discounting doesn’t actually impact a prospect’s buying decision unless that discount is for 40% or more?
So what about increasing prices?
Most small businesses have NEVER raised their prices. That’s because they don’t know the facts when it comes to increasing their pricing. They’re scared to death that ANY price increase, no matter how small, will lead to a mass exodus of all their customers. But is that really true?
Let’s use the same scenario as before. You are selling your widget for $100 and decide to increase that price by 10% to $110. Will that small increase REALLY lead to a loss of customers? Honestly, I believe a few will leave, but they are most likely your biggest price shoppers that show NO loyalty or patronage to your business anyway. They are the ones that beat you down on price every chance they get, and the moment you begin to make a decent profit, they will leave you in a heartbeat for the next business willing to accept a financial beat down. But even though there will be some customer attrition… to what extent? Let’s look at the numbers.
Their business is now making an additional $10 per widget… All of which is pure profit. Right there, that’s a 33% profit increase. For their business to make $1,000 in profit selling the widgets at $100 each, they needed to sell 33.3 widgets. But now, by increasing the price 10%, they only need to sell 25 widgets.
That means just to BREAK EVEN, they would need to LOSE 25% of your customers over a measly 10% price increase… and that simply ISN’T going to happen!
Want to know the closely guarded secret that successful businesses don’t want you to know?
STOP Discounting!!! Instead, innovate your business so you offer more value than your competition and increase your prices.
Of course, if we were working together we would need to perform a thorough price analysis on your business and determine the most lucrative price increase for you, but this is definitely a strategy I strongly recommend to all of my small business clients to help them increase their revenue. There simply is no FASTER or EASIER way to generate additional revenue.
After working through these numbers my client made the decision to increase her prices rather than have a sale and decrease them. So far, along with some other marketing strategies we applied, it is proving to be the exact thing she needed to do for her business.
Once you know and understand these and the other marketing strategies I teach, it’s just a matter of getting it all implemented in a timely and efficient manner to watch your business explode!
(…you know, the crazy, intense challenge where you have 30 days to build and launch your online funnel, while having Russell Brunson, Julie Stoian, and Stephen Larsen as your coaches?)
Word is spreading about how awesome this Challenge is, and thousands of entrepreneurs have been a waiting list for it to open back up, so they can join the next one. Well, after months of waiting, it’s finally back!
“…the false thinking that any amount of reading, watching videos, browsing social media, or going through courses will get me out of my situation… the ONLY way out is for me to take action like crazy!”
If you don’t go after what your want, you’ll never have it.
If you don’t ask, the answer is always no.
If you don’t step forward, you’re always in the same place.
They are simple rules, but they’re absolutely correct. Reading this made me reflect back to the early start-up days of one of our companies. It was a time of a very steep learning curve and a time where I learned a lot about business and about myself.
We had started a manufacturing company in an industry in which we were not known and we had no experience. So saying that we had a steep learning curve is an understatement. It seemed like we were running into brick wall after brick wall in every area of the business.
I was the one who knew the product and understood the manufacturing process. So that’s where my focus was. I was setting up the manufacturing and getting it right so that we were producing the quality product we were aiming for. While I was focused on this area of the business I had hired someone else to work as our salesman with the direction of establishing a distribution network to sell our product through.
As I was watching things come together in the business, we were making huge strides on the production side but very little was happening on the sales side. By this point I was hoping to have our distribution channels established but we didn’t. We had a few people who were interested in becoming dealers for us, but we had no firm commitments.
At this point, establishing our dealer network (i.e. sales) jumped to the top of my priority list and I decided to take it on myself. I put all of my samples and marketing materials together and hit the road.
We were producing a product with an unknown brand in an industry with some very well known competitor companies. There were many unknowns as I headed out on my sales trips.
Will they be interested in our product?
Do they sell our competitors products already?
If they sell a competitors product do we even talk to them about our product?
I also had my own internal struggles. I had to cold-call people I didn’t know and had never talked to before. I had never been in a position to sell like this. What if they are busy and are upset that I’m interrupting? What if they already sell a competitors product? What if they don’t like my product? What if they don’t like me?
What it really came down to was that I had a Fear of Rejection.
I clearly remember sitting in the parking lot of a company that I thought could be a potential distributor for us. It was my first attempt at finding a new distributor. I was frozen with fear. I had my samples with me. I had my marketing materials. But I did not want to get out of my truck, walk into the business and ask to speak to someone about our product. The anxiety caused by my fear of rejection was enormous.
As I was sitting behind my steering wheel of my truck I remember thinking about a book that I had recently read. The book was The Aladdin Factor by Jack Canfield and Mark Victor Hansen. The book is all about teaching you the power of how to ask for what you want.
I remembered a specific section that talked about the fear of rejection, which read:
“…when you find yourself afraid to ask or afraid to take action, stop and take a deep breath. Then rationally ask yourself, “What is the worst thing that could happen? Is it really that bad? Can I survive it?” If you think you can, and what you want is important, then go for it.”
If you are rejected… “Realize you haven’t really lost anything. Remember that the rejection is really an illusion. Consider this: If I ask Janet to go to dinner with me and she says no, I didn’t have anyone to eat dinner with before I asked her, and I don’t have anyone to eat dinner with after I asked her. I did’t really lose anything. I didn’t have it before and I don’t have it now. There was no real loss. It didn’t get worse. It stayed the same.
If I apply to Harvard and I don’t get in, I wasn’t in Harvard before I applied, and I am not in after I applied. It didn’t get worse. It stayed the same. Since I am already handling that – not having dinner with Janet or not being a student at Harvard – what’s the big deal? I know I can cope with that reality because that already is my current reality and I am just fine.”
“What I point out to people is that it’s silly to be afraid that you’re not going to get what you want if you ask. Because you are already not getting what you want. They always laugh about that because they realize it’s so true. Without asking you already have failed, you already have nothing. What are you afraid of? You’re afraid of getting what you already have! It’s ridiculous! Who cares if you don’t get it when you ask for it, because, before you ask for it, you don’t have it anyway. So there’s really nothing to be afraid of.”
– Marcia Martin
If they kick me out because I showed up unexpected. If they don’t like my product. If, for any number of reasons, they do not want to be one of our distributors I told myself that I’d be ok. Because they are not one of our distributors now, they’ve never met me before. So if they reject me, what’s changed? They’re still not a distributor, they still don’t know me. Nothing has changed. Can I survive if that happens? I shut the truck off and went in.
Fortunately I don’t have to tell you about how I was rejected and kicked out of the building. Rather, this particular operation turned into a distributor for us and still sells our product today, 14 years later. But what this single experience did for me, was that it put me in the right mindset as I approached more and more potential distributors in the coming days and years.
I did have a number of “no’s” after this first attempt and I survived. But I also had a number of “yes’s” which helped us establish a great dealer network to sell our product. This was a great learning and growing experience for me that helped me as I established our sales network, but it was more than just that. It has helped me in a number of other situations, businesses and relationships since then. The fact that 14 years after this happened I still recall the story quite often shows the impact it has had on me.
In the words of W. Clement Stone, “If there is something to gain and nothing to lose by asking, by all means ask!”
“I’ve learned that in order to be happy in life, you need to figure out what your talents and strengths are… then run with them! Don’t settle for anything less than what your abilities can get you.” – Trey Lewellen in Expert Secrets (Click below for your FREE copy)
Earlier this morning I had the post below ready to go but hadn’t pressed Publish yet. I was sitting at my desk reading from the book that you receive when you join the One Funnel Away Challenge.
It’s absolutely incredible what you can gain from this Challenge. But, if you didn’t get anything else besides this book, it’s worth it’s weight in GOLD!
Russell Brunson sent a brief email to over 100 of his ‘Two Comma Club’ award winners…
Inside that email was a single question…
Here’s what it read:
“You suddenly lose EVERYTHING in your business (your money, your big name, your list, your affiliates and JV partners, all of it)…You have bills piled high, and people harassing you for money over the phone.
All you have is a roof over your head, a phone line, an internet connection, and a ClickFunnels account for only ONE MONTH.
Other than your vast marketing experience, you’re back to being a newbie…What EXACTLY would you do, from Day 1 to Day 30, to save yourself?”
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There is a tremendous difference between feeling the fear and doing it anyway and the freedom which comes from finding the space in yourself which is beyond fear. And the more time you spend living beyond fear, the sooner the answer to ‘What would I do if I wasn’t afraid?’ will become ‘Exactly what I’m doing now.'”
Sales is about being able to communicate with your potential customer what it is that your service or product does for them in such a way that they can see it. Because if they can see it the same way you can see it, they’ll buy it.