Podcast Summary
Belief in what you sell matters: Having genuine belief in your product or service can lead to higher prices and increased customer value. Communicate the value to your customers to justify the investment.
Having genuine belief and conviction in what you're selling can significantly increase your earnings. This was a lesson the speaker learned when he ran gyms and sold a boot camp program that he didn't fully believe in, charging $99 a month. He became frustrated with the results and decided to switch clients to a more effective semi-private program, but couldn't do so at the current price. So, he sent a mass email to his customers announcing a tripling of prices to $299 a month. Though it was a risky decision, it paid off, and the clients saw the value in the new program. A similar situation occurred later in his career when he sold a program for $42,000 a year, and he aimed to decrease churn and increase the lifetime value of each customer. Ultimately, the speaker's experiences emphasize the importance of having faith in your product or service and communicating its value to your customers.
Price reductions can lead to financial losses: Lowering prices can result in decreased profitability and even significant financial losses
Lowering prices for your services can lead to significant financial losses. This was the experience of the speaker, who had to make the difficult decision to lower their prices in order to compete. Despite the initial excitement from their team and customers, the decision resulted in a decrease in profitability. The speaker lost $5,000,000 per year as a direct result of the price reduction. Additionally, the speaker's overhead costs increased due to the addition of new services, further reducing profitability. The speaker emphasized that most times, when businesses lower their prices, they make a lot less money. It's important to carefully consider the potential impact on profitability before making any price changes.
Decreasing prices to retain customers can have unexpected financial consequences: Price reductions can lead to significant revenue loss if they don't decrease churn as intended
Decreasing prices to retain customers can lead to unexpected financial consequences. In this specific case, decreasing the price of a service by 60% to reduce churn led to a decrease in top line revenue of 25%, resulting in a significant loss for the business, which was operating with a 70% margin at the time. The speaker had hoped that the reduced price would lead to a decrease in churn, but it did not, and instead, they lost a significant portion of their income. It's important to carefully consider the potential financial implications of price changes before making them. Additionally, the speaker emphasized the importance of communicating clearly with customers about any changes to their pricing or services, as they did by offering a two-week free trial before automatically enrolling customers in the new pricing.
Maximizing Customer Lifetime Value: Boost profits by increasing prices, decreasing costs, and implementing strategies like resales, upsells, cross-sells, down-sells, and encouraging customers to purchase more frequently or differently.
Increasing the value you provide to customers and raising prices accordingly can significantly boost your business profit, even if it means serving fewer customers. Conversely, trying to cater to more customers with lower prices and more offerings can lead to decreased profits, particularly in service-based businesses. These are important considerations for those looking to increase their customer lifetime value (LTV). LTV can be enhanced in six ways: increasing prices, decreasing costs, and implementing strategies such as resales, upsells, cross-sells, down-sells, and encouraging customers to purchase more frequently or differently. For example, instead of buying a burger once a week, you could encourage customers to buy it twice a week. Or, offer a larger burger instead of a smaller one. These strategies can help increase LTV by getting customers to buy more or buy something instead of nothing.
Price changes impact profits: Lowering prices may lead to selling more but making less, while increasing prices may lead to selling fewer but making more. Consider potential gains and losses before making price changes.
Making significant price changes to your products or services can have a big impact on your profits, but it's important to carefully consider the potential consequences. According to Alex Schmozzi, founder of Acquisition.com, lowering your prices often leads to making less money, as you would need to sell twice as many units to make up for the lost profit. Conversely, increasing prices can lead to making more money with fewer sales. It's essential to weigh the potential gains against the potential loss of customers before making any price changes. This concept can be illustrated using the example of a $100 product with a $40 profit margin. If you lower the price to $80, you would need to sell twice as many units to make the same profit, but you likely won't sell twice as many. Instead, you might sell 3/4 as many units and make half the profit. Alternatively, if you increase the price to $150 and make a $90 profit per unit, you might sell fewer units but make twice the profit. Therefore, it's crucial to think through these decisions carefully and understand the potential impact on your business.
