PreneurCast is a business podcast. Each week, author and marketer Pete Williams and digital media producer Dom Goucher discuss entrepreneurship, business, internet marketing and productivity.
This week, Pete and Dom focus on another of the 7 Levers of Business: increasing your average item value. In the simplest terms this could be as easy as raising your prices, but they also discuss other approaches if this is not an option.
Pete and Dom talks on increasing your average item value
Transcript:
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Episode 137:
Increase Your Average Item Value
Dom Goucher: Hi, everyone, and welcome to this week’s show. Dom Goucher here with, as always, Pete Williams. Hey, Pete.
Pete Williams: Hey mate, how’s things?
Dom: Pretty good, pretty good. I’ve actually been back in Spain for a couple of weeks now. Not jet-setting around so much at the moment. Although about to start a bit of pretty major contract with a client where I’ll be traveling backwards and forward, so I expect calls from foreign lands. How are you yourself?
Pete: Very exciting, very exciting. Lots going on. A bit of a sick family this week. Juggling that and trying to train for this Ironman I’ve got in a couple of weeks’ time, which I am so not ready for. So it’s going to hurt like hell, but that’s what you get.
Dom: Well, I’m just going to change subject because all of that fitness stuff. You know me, I can’t be dealing with that. This week, folks, we’re going to be talking about another of the 7 Levers. We’re going to be talking about raising your average sale price. So, watch out for that because some top tips, as always, from Pete, and hopefully, a bit of a different perspective from me as well.
Before we jump into that, let’s talk about the standard things. Other than family illness, which has been, and I know, a bit of a major thing for you this weekend, and I’m sorry to hear about that because I love your family, love them to bits, so I hope everybody gets better soon. What’s been going on business-wise over there, projects and business?
Pete: Yeah, lots of good stuff. Just a couple of negotiations in the telco, which is interesting, and then also just working on some major infrastructure changes with you in the Preneur side. So, exciting time’s been happening.
Dom: Yeah, folks, that’s pretty major stuff actually, isn’t it?
Pete: Yeah, it’s taking a fair bit of time and a fair bit of planning, but I’m pretty excited about what it’s going to give us and where we’re going to go. It’s one of those, ‘watch this space’ type of things.
Dom: Yeah, I’m also going to insert the word ‘pivot’ in there as well. Because when we get to talk about this, when we get our nail down, it’s definitely been a pivot for us and it’s a huge thing. But I think it’s one of those things that is just going to line everything up, so we’re both very excited about this. So yes, that’s cool. For me, I have, as I said, started a new big undertaking for a new client. Really excited about it. But I’m actually going to be getting involved at the kind of coal face. The new thing is all about consulting, so about not getting involved at the coal face. So this is a bit challenge for me, to make sure I maintain that thing. It’s a weird situation, but hopefully, it’s going to be a way of — maybe I can give some insight into it as I go through it.
But a way of doing that thing that we talked, and we talked about quite a few times, which is working on a business, not in a business. As a consultant, I’m outside and above things to give that higher perspective, the strategy, but it’s so easy to get sucked in to doing things, to delivering inside of the thing, and it’s not helpful to me, and it’s not in the long run, helpful to the client. If a skill needs to go into that client, then they need to get some knowledge transfer from me from training or whatever else. But I need to stay away from doing the thing even though I can. So a bit meta, a bit high level there, but hopefully I can bring some examples of that in future shows just to really bring home that message that we do say a lot, which is work on your business, not in your business.
What about books? Been reading or listening this week with your training for your Ironman?
Pete: Yeah, I’ve been listening to some Ironman-related books actually, a couple of books about an autobiography, and then a biography about another athlete. It’s been more motivation to keep me training.
Dom: Yes, it’s a little bit meta, that is. Listing to Ironman books while you’re doing your Ironman training, it’s a bit circular.
Pete: Yup, but it’s been good. Pretty motivational. It’s just been helpful.
Dom: Yeah, okay. Good for you, good for you. I’ve been listening to work stuff. I came across this really cool book. Sorry to geek out on these guys, but I know this a big issue. I know, recently, you and Davey J (Dave Jenyns, your big pal, partner in crime elsewhere, you’re the partner in crime) have been working on your outsourcing course. A big part of that for me is describing the process for somebody.
I finally came across this book. I have loads of examples of different ways of describing and documenting and diagramming processes, but they’re very disparate, and they’re all over the place. The Internet’s full of opinion and stuff like that, and I finally found this book called The Basics of Process Mapping, by a guy called Robert Damelio. It’s not a big, thick book. It’s like, ‘you want to draw up a process like this, use this kind of diagram. Here are some tips to make it work out for you,’ away you go. Brilliant. Anybody who’s thinking to try and map out, whether it’s map out your sales funnels for your 7 Levers, big, big process map, big important part of your business, or whether it’s trying to do some training or handover for somebody on your team, or trying to deal with an outsourcer, strongly recommend a quick look at this book to pick up the right kind of diagram for the right job, and then the right way to do it.
What sucked me in and sold this one to me — and Pete, I don’t know if you use these at all, but I’m a big, big user of swim lane diagrams. And yet, believe it or not, it’s really hard to find a good reference to give somebody about how to do swim lane diagrams. Folks, very briefly, swim lane diagrams is a way of, you break things up into what they call swim lanes, like it’s a swimming pool, and each lane is a person in the process. So it’s you, your outsourcer, the client, whatever it might be. And what you do is you put the job that somebody’s doing in their column, and then you connect them together. So it’s really clear from anybody looking at the diagram who’s supposed to be doing what, when. It’s like a flowchart, but broken into who’s doing it. There you go. Go read the book, basically, is what I’m saying, because it’s got a great description of swim lane diagrams and lots of other process stuff.
Sorry about the process diagram geekiness there, but I think it’s one of the things that you and I have talked to a lot of people about when we talk to them about outsourcing. It’s communicating that process and documenting that process. So, top tip.
Pete: It is a bit of a necessary evil.
Dom: It is, sadly, for those that aren’t visual or don’t have that experience. So, top tip, The Basics of Process Mapping, Robert Damelio. Not a big, thick book. Very easy, very accessible. And the other thing, because I’ve been big on the old mindset recently — just in the last [Preneur] Platinum call, I was talking a lot about mindset. Because mindset’s a big part of business, especially for an entrepreneur. You’ve got to have the right mindset. You’ve got to get out of your own way. You’ve got to have the right perspective and so on. After a most random, random connection I came across a book called The Chimp Paradox by a chap called Dr. Steve Peters. This is a really in-depth investigation to something that you may have heard about before, which is this idea that we’ve got these different types of brain, all inside our brain, all in one time. There’s different levels of our brain that are reacting to different things. Some of it we can control, some of it we can’t because it’s hereditary, it’s evolutionary. This idea that you have, some people call it the croc brain or the lizard brain, and those different things. I don’t know if you come across that.
Pete: Yeah, Seth Gordon talked about it quite a bit. It’s also mentioned in Pitch Anything by Oren Klaff, who we had on the show before.
Dom: Exactly, so the croc brain comes from Oren Klaff, lizard brain’s another one. But also, some people talk about this idea of the monkey mind, which is a big thing if you’re an entrepreneur or work on your own, self-employed, that kind of thing. This idea of something going, ooh, that’s interesting over there. Ooh, ooh, ooh, and it’s stopping you from doing things, and things like that. This book is all those topics, all those topics. It’s just fascinating. Those of you interested in psychology, self-development, but anybody who has any problems with focus, motivation, just determination, or anybody who feels not quite sure of themselves, problems with public speaking, you name it, pretty much every psychological issue you could possibly have, is in this book.
Pete: Interesting.
Dom: Fascinating read, fascinating read. I’d go as far as to say, Pete, that I think if we can get Dr. Steve on the show, we should, and focusing on a particular topic that’s relevant to the audience. But honestly, go read The Chimp Paradox as well. There you go. So, a bit of the busy week for me with books, but good week, good finds though. I was very pleased with those.
All right, so enough rambling in esoterica so we get into our core content for this show.
Pete: Let’s talk pricing.
Dom: Let’s talk pricing. Let’s do that thing that everybody is afraid of. Nobody wants to do anything with pricing. Nobody likes pricing, do they?
Pete: No, not at all. Everyone wants to seem to play that race to the bottom. It’s easy to drop your prices and just, “Oh, I’ll drop my prices. That’ll make more sales,” because it’s an easy thing to do. But it’s a very scary thing because you end up just racing to the bottom to who can do the thing the cheapest. Particularly in the digital world, that has unique implications because if you’re selling a digital product, whether it be a Kindle book, or a training program, or some software, or anything that’s digitally delivered, the incremental cost to deliver that is virtually nothing, so you can easily justify to yourself, “Oh, it doesn’t cost me anything to deliver this. I’ll sell it even cheaper,” and that can be very, very painful for your business’ bottom line in the profits.
Dom: I’m just going to stop you there, okay? Because this show is not about dropping your prices. This show is about increasing your average sale price. So folks, that’s the end of talking about dropping your prices. This show is about increasing your average sale price. This is a big one of the 7 Levers, not because it’s something that you can have a big result. Every one of the 7 Levers, we’re only looking for that 10% increase.
The reason why this is a big one for me is, to me, it’s the biggest sticking point that people can have in all the 7 Levers because we get all kinds of friction with this one. We get, “Oh, I can’t raise my prices.” Or even if somebody’s starting out, “Oh, I can’t charge that much.” Things like that. And so that’s really why this is a big one for me, to talk people through this, bring those issues out, put them on the table. Give them a good slapping. Get rid of them. Yeah?
Pete: Yeah, absolutely. I think the big thing that people don’t take the time to realize is that — I’ll refer to it as the average item value, because we’re trying to, in one of the levers, increase the amount of items we include in the transaction, so getting people to buy two, three, four. We spoke about that recently on the show.
So if you think about the mathematics of this for a moment — average item value, what that means is what is the average price of the products that the person has in his shopping cart (in his shopping trolley, however you want to refer to it). You can increase that average item value by upselling to more expensive products in the items per transaction lever. In the earlier lever, when we try to get people to buy additional items, if we make that additional item an increased price upsell, what that does automatically (without doing anything really unique in this particular level, just by default), your average item value will increase.
Dom: See, I like that. I like that. Instead of increasing the price of item A, what you do is as part of the previous lever, you endeavor to sell the customer something else just when you do, and sell to them something that has a higher value, item B, which has a higher value than item A. The basic maths of it is that item A plus item B, divided by two, that’s your average item value and it’s gone up.
Pete: Exactly, yup. Absolutely right. There are more, smarter, intelligent ways to do this in simply just increasing your front-end offer price point. So, by thinking about, “What is this additional item or additional service I’m going to offer this person?” One of the big things that work exceptionally well if you’re in an information marketing or services business is have your consulting or your product price, whether it might be an e-book or a home-study course, or even like a consulting session, is what you sell where you’re basically providing advice in return for revenue, that can be your front-end offering.
A great way to help increase your items per transaction, but more importantly, significantly increase the value of that, is to offer done-for-you service. So someone comes along and buys some marketing consulting services from you, Dom, for example. This is exactly what you’re going through right now, is they could’ve paid X for our consulting services. But whether you offered or they demanded it (that’s debatable, I guess), you are now offering a done-for-you service where you’re going in there to the coal face and doing extra work, but you are charging them a significantly higher price point, which then overall increases your average item value for that client.
Dom: Absolutely. It’s funny you said that. I didn’t even think about it in that way, but you’re absolutely right. That’s exactly what happened. I have some line item services that I go in and sell. ‘Here’s item A. When when we’ve delivered item A, you’ll probably want to think about item B,’ which has a higher price point. But still they’re deliverables. They’re consultancy services. But yeah, the situation I’m in right now is actually delivering exactly that done-for-you service.
We’ve gone through the other items that I have as standard items, and they’ve said, “Hey, you’re quite a sharp guy and we need to implement the suggested changes you made. Can you do it?” “Yes, of course, I can. There you go.” And sometimes, it is really that easy. It’s a great example that you even highlighted that I didn’t notice, but it applies in a lot of those cases where you’re offering basic services or basic consultancy that you can do that. That’s a really good one.
Pete: And the third way to increase your average items that people don’t think about, but again, isn’t just increasing your sales price, is again, what we spoke about in a recent episode when we spoke about the items-per-transaction lever. The different types of upsells, and cross-sells, and add-ons, is just in your sales process, offering the person the more advanced version of the product or solution once they’ve already made a micro-commitment. And what I mean by that is the person’s already fundamentally said, “Yes, I’m going to go and buy product A.” Then, as soon as they show that agreement and forward planning, start to say, “You agreed for this, let’s now consider a higher-quality product.” So, not a second product, it’s a higher-quality product.
So, someone comes in to your retail store to buy a lawnmower, for example, and you sell them a very basic lawnmower. They agree and say, “Yup, I’m happy with this.” But then what you start doing is you start asking probing questions to figure out, “They’d be better off getting a lawnmower with a mulcher attached to it.” Then you can transition them from that original agreed purchase to a higher-priced products. So, not actually increasing the cost of the basic lawnmower by any stretch of the imagination, still a standard price point, but what you’re trying to do then is just increase the person to go, ‘how about buying this more expensive item with better benefits and better facilities and functionality’ and things like that. It’s a way to not add an additional item to the cart yet (that’s a different conversation, a different lever), but just about migrating that person from level A to level B in the product range. Does that make sense?
Dom: Yes, I just want to clarify that one, because we did go from, ‘sell them something else, then the average is higher.’ So we’ve had, ‘sell two things instead of one, but the second thing is of a higher value,’ which overall increases the average because the actual lever is average item value, ‘average’ being the key word there. Then we had, ‘make sure that you’ve got something of higher value to sell them. A good example of that would be a done-for-you service, which is quite literally of higher value. It’s not just something you can put a higher ticket on yourself, but it’s literally of higher value to the client, which I think is something we should come back to. Let’s have something that there is, and then you can progress people through, ‘you’ve done A, you’ve got A, you’ve got B, you probably now want C.’ My consulting is an example of that. And then we have the third one, which is, again, it is related because it has something of higher value that you can offer, but in that example, you used consultative selling.
At the point where they say, “I want to buy a lawnmower. I want to buy this one.” You go, “Can I just talk to you about your needs? Can I understand the situation? Yes, okay. Probably this other thing is going to be better for you. Yes, it’s slightly more than you’d originally decided you were going to pay, but it will meet your needs.” We do talk about that quite a lot, the idea of consultative selling — talking to somebody, understanding their needs, and again it’s this value word, we’re genuinely offering them something that meets their needs by listening to them and responding to that what you hear, and offering them another thing. That, again, is a form of value to them because all these things are value exchanges, right?
Pete: Yeah, everything in business is a value exchange.
Dom: A lot of people just equate value to money, because as the businessperson, money is our measure of how much the customer values what we’re with giving them. But the customer doesn’t measure it that way. A lot of people do think that, and that’s where a lot of this friction on pricing things come from, really, is that people think the customer just looks at a number and goes, “That number is too high.” When they actually look at the number, what the customer is doing is saying, “Am I getting value? Am I getting sufficient value for the number I’m handing over?” They have to evaluate, and it’s not just a number. It really is. It can be, “Will this solve my problem?”
And I think basically, those couple of examples that we gave were about making sure that the things that you offer solve the problem the person has, whether it’s the fact that they’re time-poor, or they don’t have the skills for themselves to implement. So, the done-for-you service fits that scenario, or the consultative selling with the lawnmower where it’s the right tool for the job.
Pete: And this is the interesting thing — those two or three examples in ways to increase your average item price, I think people often overlook or forget, and they go straight to increasing their prices. These are the things, like when we consult with a company and help them implement those 7 Levers in their business, and get that growth, that’s where we go first. We don’t say, “Just jack up your prices.” We go to these other ways first because they are more powerful and they give you a much better opportunity to increase those average item prices, is what I’m trying to say there.
Dom: It’s a win-win situation in my mind, and it is why we do do that. Because from a client point of view, the value becomes more apparent. The consultative selling approach, people feel listened to, they feel that they definitely got the right tool for the job. Or offering the done-for-you service, again, people really feel that the pressure’s been lifted. So you’re suggesting things to somebody — if they want to go through 7 Levers in their business, you’re suggesting things that are immediately, to their customers, valuable things. But when we’re consulting people on 7 Levers, it overcomes a lot of friction. Because going in and telling somebody, “Raise your prices,” isn’t helpful in some cases. People are getting stiff for whatever reason, there’s friction, there’s difficulty, there’s challenges. The Chimp Paradox comes in, believe it or not. Fear, things like that, “I can’t do that. What will they think?” And so, by offering this alternate route, have a higher value product, “Oh, I could do that. Oh, yes.” “What we can do, of course, we can do done-for-you services. There you go then.” This reduces our friction, so it’s a win-win.
Pete: So moving forward in terms of the next level of strategy or tactic that we’d try and implement with someone when we’re going through this process is, how can we not sell a different product, but add to the original product at a higher price point? Someone can buy product A at price A, or they can buy A2 at price B. What I mean by that is product A with a whole bunch of additional bonuses and benefits at a higher price point. We’re not trying to sell them a separate option or separate product, but just trying to option the product up, if you’re looking at the car industry.
Dom: Enhance.
Pete: Enhance, beautiful world. And the best way to do that is by offering air. What I mean by that is, let’s say someone comes along and wants to buy a product from your business, and you offer that product in a standard form for $100. That’s what the item costs, it’s $100. Well, how can you add on to that product to give people the opportunity to pay $120 for that product? Let’s say it’s a microwave, as an example. So you had $100 for a microwave. I don’t know if that’s cheap or expensive, but your microwave is $100. What can you offer with that microwave as an alternative option for that client that allows you to charge $120? Well, maybe you can offer an extended warranty, so the warranty comes with the microwave for 12 months. Can you offer a two or three-year warranty with the product? Can you offer an e-book or even a printed book full of menus and tips on how to use the microwave? Can you offer an apron that comes with the microwave? Then you have these options [and you can say], “Well, you have $100 for the microwave, or you can spend $120 and get those additional value at a very cheap price point.” It doesn’t cost you $20 out-of-pocket to be able to offer a warranty, or to offer a series of e-books, or a video series on how to best cook with the microwave.
You may even think about offering digitally delivered services, if you are selling a physical product. I know we have quite a bit of an audience who are in that physical retail world, but offering a bonus that’s digitally delivered, it forces the client to give you their contact details that you can then use to increase the lever that is transactions per period, because you have to get the e-mail address to be able to deliver them that digital e-book cookbook, or that digital cooking video series. In that way, you have their e-mail details that you can then use to connect to them after the fact, to buy other stuff with you in the future. So that’s a very subtle way to tie some of these levers together as well.
Dom: I’m going to pull apart what you just talked about because there were three different things in there, all of them perfectly good ideas. But just to clarify, because you opened up by saying adding air. Adding air is this concept of things that don’t necessarily cost you money, but appear to, or genuinely do add value. An example you gave was maybe warranties, insurance policies, that kind of thing. Those are things that if you do have to make good on them, then they cost you money. But in general, they certainly don’t cost you anything to offer. You don’t have to implement anything particularly, put anything in place, or anything like that. Don’t have to manufacture or buy anything in, so that’s where you were talking about the ‘adding air’ part of that, so that’s a great way. It’s not technically making the actual object have a higher price, but the composite sale of that object, plus that extra whatever it is, is higher, so the average item value is higher. That’s one thing that you said.
The other thing is absolutely the most basic, fundamental thing you can do, which is to go and find something else that you can bring in where you can at least maintain your margin, another lever there for you to talk about at some point. Bring in a thing and add it to the packaged item. You gave examples. Cookbooks, which is a great one, or utensils, or aprons, cooking aprons, just keeping with that cooking model idea. All these things you can bring in, they don’t cost you that much money, but they literally do add genuine value to the objects so people will say, “I’ll pay $120 because this one comes with a free squiggle.” And honestly, folks, look around. Any kind of white goods, home appliance thing, you’re going to see this. Look for any food-processing tool, any kind of thing like that, and it’ll say, ‘free thingy.’ I’m not a food person, but there will be a thingy in there, I guarantee you. A thingy or a doohickey, or a widget that does something like, I don’t know, silicone scraper to clean out your juicer. There you go, that kind of thing. That’s an example of that, where something goes in the box and suddenly people go, “Yeah, that one’s $10 more than that one, but you get this free thing with it, it’s really useful.” You’ve added that thing here and it becomes part of the box, part of the sale.
And the final point you made, there are two things composited into one on that one, was you transitioned the idea of the cookbook to maybe a digital download. Now you mentioned at the beginning, one of the greatest things about digital downloads is the cost of delivery is basically zero. Yes, you have the cost of production. But unlike a physical object, if you a take digital book versus physical book, the digital book production costs stops when you finish writing. Whereas, a physical printed book, you still have to pay for it to be reprinted each time, whether it’s print-on-demand, or you bulk-buy, or a big print-run to get it cheap. It’s still going to cost money every time you want one. The production and delivery side of things is separate with the digital. So, you’ve got this massive reduction in delivery cost, which means that it becomes close to air, our first point, in terms of adding the value to the product. “Get a token for a free download of,” “You’ll get your code inside the box for the free download of 100 recipes to use with your juicing thing.” That’s a great tip, a great way of adding value to an object, to an item for sale, without costing yourself a lot of money, which is merging two things together.
But I love that extra tip you gave. It was a really good one, talking to another lever, which is repeat transactions, transactions per period. In order to get repeat transactions from somebody, in order to increase your number of transactions per period, you need to be able to contact them. You need to be able to draw them back into the store. This is a very fundamental thing. In fact, you and I were talking about this earlier on today. One of the fundamental things about the 7 Levers that overarches everything we talk about, is measurement. And ideally, you want to know that the person that came last week, will come again in 6 months’ time. When they turn up, you want to be able to notice it was them and measure it, and keep an eye on it. So this idea that they buy an item from you, and you offer them a digital download, when they sign up for it, they’re tripping a flag that says they bought something. “This is me. I bought this thing,” and you also then get that contact data, as you said, to be able to contact them and offer them new offers, new products. Just bring them back into your store, just offer them another thing to buy later on, and increase those transactions. That is a bit of a mega tip.
Pete: Very cool. I’ve got some more things, more ideas. I’ll throw out there as well for this episode. If you’re a digital-product supplier (so you’re an information marketer, you sell digital courses, you sell software), a really good strategy that I’ve seen — for a lot of people, the issue is, “I don’t have the resources, time, or effort to create more free content or more bonus content. The effort to get my core product completed was enough of a nightmare.” I think for a lot of people, that getting that first product in its basic form, ready for sale, is enough, and that’s completely understandable.
Dom: In my previous guise, I can definitely attest to that.
Pete: Yeah, so you sell it for $47, $97, whatever it might be, and that’s your product. That’s fine. What I’ve seen work exceptionally well, which then also helps drive the joint venture partner opportunities (so again there’s some leverage on this idea; it doesn’t just fit or fix the one problem I’m about to mention, but it also gives you additional benefits, which will become clear in a moment), what you do is you reach out to other people in that same space. You say to them, “Hey, Scott. I notice you also operate in the underwater kickboxing training space. I’ve got this product I’m selling and marketing. What you have that you sell for $7 (or give away for free, or sell for $50), that you’d be willing to give me for free that I add on as a bonus to the premium version of my product. So someone can spend $47 right now and buy my personal course, or they can spend $57, $67, $51, just 10% more.” Because again, all we’re trying to do is increase our price by 10%. You go from $47 to $52, just slightly higher than a 10% increase. So for $52, they get the core product, plus they get Scott’s amazing tips on How to Breathe Underwater When You Are Kickboxing program or e-book.
Then you reach out to Julie, and Julie gives you an e-book that she’s written in that space already, that she uses as her lead-generation piece, that then shows you how to stretch before your start underwater kickboxing to make sure you get a greater reach. I’m making all these examples up, I’m sure people understand. But it’s a very easy way to then say, “Hey, Julie and Scott,” you’re getting content from them for free. You’re adding it to product, which didn’t take any more effort, time or struggle on your behalf. It gives the person who’s going to be a buyer to say, “I can spend $47 for product A, or $52,” an extra 10%, amazing extra 10%, “and buy the premium package, which has these other additional bonuses that are from other experts as well,” which shows this as a very holistic course. That’s a great way.
On your sales page, you have the two offers, Offer 1, or Offer 2, which is the premium version. But then also because Julie’s involved in that project, she’s got some sort of investment, so to speak, by offering her product on that sales page. Just then you can turn to Julie and go, “How about we now do a joint venture promotion to your list to promote my product?” Because you’ve already shown her value first for saying, “I want to expose you and your product to all my buyers.” How great is that for Julie and Scott to say, “I’m going to expose you to people who buy stuff in this niche. They’re going to then devour your free content, and then go and buy stuff from you in the future.” So it’s a huge win for them, it’s a huge win for you on the front end by increasing your average item price. But then also, you can then use that relationship that’s being built there off providing value to Julie and Scott first, to then say, “Hey, how about we now do a joint venture promotion?” So you’re getting, again, a couple of birds with one stone.
Dom: Okay, pretty cool. That’s, as you say, literally adding value to your product, therefore giving you an easy way internally to say, “I can increase the price because it’s worth more, because there’s more in it.” It is quite a digital example. It’s most easily done within the digital space where people are building information products, e-books and things like that. I’m sure, if you thought about it, you could apply this in different scenarios, but it’s definitely easier when you’re just moving bits of bytes around.
But yeah, by building that relationship, by saying, you give me something to include in my product and you get the credit. I’m going to tell everybody about you. They’re going to read your stuff and go, ‘Hey, you’re cool,’ and you’re basically giving them or offering them the chance at traffic, focused targeted traffic coming from your list, and at the same time, because you’re building a relationship, then you’re increasing your opportunities to go and get some traffic for yourself, because you can then offer that product on whatever basis. You might need to do a deal about the revenues and things like that, but you can offer that product back into their list, which is a traffic source you didn’t have.
Pete: I really do think that the biggest take away people should get from this episode, I think as a minimum, is working out how every single product in your product line, so every front-end product that you sell, should have a premium solution attached to it. So you have a product A, plus a premium version that is only 10% to 15% more. Because for most people, if you can show an additional 20% or 30% in value, however that’s perceived, but only charge 10% for it, you’ll be amazed how many people actually take in that offer.
If you think about it, last time you bought a course, most people who listen to this podcast probably invested in information products, whether they sell it and do it as their own business, that’s another thing, but you’re at least investing in education to grow your business, in books and e-books and training programs. Think about the last time when you invested $47 in something. If there was an offer on that sales page that said, ‘$47 for the core product,’ or, ‘for $52, you get this version with additional stuff,’ or it was $97 and $110, or it was $497 or $547. Just that 10% extra increase. Of course, most cases, you would’ve gone, “I’ve already committed mentally to spending $47. Why not spend $55 to get this additional stuff?” Because all that’s then saying mentally is, “I’m spending an extra $5 getting all this extra value.” It’s a $5 sale in that mental aspect of it.
And it’s such an easy thing to think about, from your own perspective, “Of course, I would’ve done that.” If you’re going to a retail store to buy some footwear and you have the running shoe for $120 from the shelf. But then also, for $135, you can also get a pair of socks, this e-book on running tips and a pair of licenses, or whatever it might be that [a store] can factor in and gives them that additional profit. That is such an easy subtle upsell for most people who will take, without any pressure from you, the salesperson, having to make.
Dom: The other weird thing about this show, that’s the second time in the same show that you said something and I thought, why aren’t I doing that with my business? Or, yeah, I realize that was me doing it unconsciously. In this case it is, why aren’t I doing that with my business? Literally, while you were talking there, I’m thinking to myself, yeah, those standard items that I’ve got, the things that we go in with, in a box, this kind of thing, why can’t I do a premium version of that? Why can’t I add an extra item that increases the perceived value to the client?”
Pete: I think the biggest thing though that I want to reinforce, I think a lot of people, on the surface, have an understanding of the value of premium product. You should be offering your premium version of everything, they’re aware of that. It’s a very basic Business 101 kind of idea. But the biggest thing I really want to just repeat, to hammer home, is that when you’re looking at running your business through the foundation and framework with the use of the 7 Levers, which is probably the most powerful business framework there is on the planet.
Dom: In your humble opinion.
Pete: Well, absolutely. Hey, if I don’t believe it, who will?
Dom: Hey, it’s based on math. You can’t argue with it, that’s the thing.
Pete: Exactly. And the thing is all we’re trying to do is increase each lever by around about 10%. So then, you have that doubling of the profit of the business. When you are looking at offering a premium package, most people, when they think of offering a premium package, they think making it 50%, 60% , 200% more expensive so the premium’s a significant jump. That gets scary to create and scary to offer. But simply, all we’re trying to do here with our premium offer, is make it 10% more expensive so it’s very easy to deliver from a production perspective. You don’t have to get scared by what’s required to offer something that’s only 10% more expensive.
But also, 10% more expensive is such an easy sale to make or an easy purchasing decision to make from the buyer’s perspective. You will find more people will take that 10% increase premium overall, than it would be if you offered an option that was 200% more expensive and had less take-up. Overall, you are going to get a much better result, which is, at the end of the day, going to drive more bottom-line profit to your business, which is what the 7 Levers and business, in general, is all about.
Dom: Definitely a point worth reinforcing and highlighting. I really agree with that wholeheartedly. That people all go in, all the time, in any case, they’re all going for the 50-100% increases. And probably, this is one of the best places to focus on the 10% because it is, as you say, an easy 10%. If you can sell something at a price, you can sell something that is worth more for 10% more. This is a great takeaway from this. I think it’s a great takeaway from this show.
Mate, we are getting towards where we would normally close things down. You probably got a few more things, but I want to make sure that we absolutely just get a hold of the elephant in the room and give it a good slapping. And that is, charging enough for what you’re selling or increasing the prices. Those two big friction points. Now, have we got some quick takeaways for people for either believing in yourself, charging enough for something, or increasing the prices and justifying that?
Pete: Sure. I think from a front-end perspective, I would highly argue that anyone listening to this show is the most expensive in their space. There isn’t going to be one person in every space that is the most expensive. So, based on mathematics again, the chance of that person listening to the show and being you is pretty slim. There’s definitely price elasticity in your market right now, and what that means is that people are more elastic. There’s more of a spring or more movement in pricing than you probably already give it. So, just by simply increasing your prices, it’s not going to make you the most expensive in your space, generally speaking, for most people listening to this show. There’s going to be a price elasticity where you can increase 10% and still won’t be the most expensive, and still going to make a significant amount of sales. So that’s a very high-level first element.
Dom: That’s a good perspective, that you’re not the most expensive. And even if you re-priced, you still won’t be, so why not? Cool.
Pete: The second thing, which I touched this earlier, is as you work through the 7 Levers of your business, not only does everything increase by 10%, and at the end of the day, you’re profits double (which is just a beautiful thing), but your perception in the marketplace, your positioning, your offering — everything improves exponentially. So if you have a much better traffic source, which gives you much better-qualified prospects, then you have a much better opt-in experience where you have testimonials and guarantees and great delivery in your opt-in scenario, however, you structure that.
Maybe you have a retail store, which we’ve spoken about before, and you have a beautiful experience a person has when they come into the store before they sit down and try a pair of shoes, or check out that dress, or take a demo with the vacuum cleaner. Then you have a fantastic conversion experience in how you sell the person, how you offer the person the experience, how you deliver all that conversion engine-related stuff. That’s going to give a much better experience for your customer than anywhere else. So just by increasing those first two or three levers, the perception and experience of that client is so much better that you can naturally, just as a by-product, charge at least 10% more. Just purely because the experience in the first two or three levers have been a wow factor, it’s been a magic moment (if you will), for that prospect that they’re going to just subsequently pay that little bit extra.
Think about when you go to a restaurant. At the end of the day, you go to a restaurant to nourish yourself and give yourself food so that you’re fueled for the next day. But if you go to a McDonald’s, the experience there when you walk in into the store and get served, and how the food sits on a plastic tray and pieces of cardboard, that’s the opt-in conversion engine. It’s like you have to walk to the server. You have to tell them what you want. You have to pay them straightaway. That’s the opt-in scenario. Then the conversion engine in terms of the experience here is, “Here’s your food in pieces of paper and cardboard on a piece of plastic,” and then you go and consume it. Now, at the end of day, you’re consuming food.
Let’s say you go to a much more elegant restaurant where you are welcomed by a doorman. You are taken to your seat. You are given a napkin over your lap. You are poured water. This is all your opt-in experience. You haven’t even ordered yet. Then the waiter comes to you. He takes your order. They go way. They comeback, they serve you the food on beautiful plates with nice cutlery, and they fill up your water numerous times. That’s the experience you get. At the end of the day, you are still consuming food to be nourished, but you’re willing to pay substantially better money, even if the food at the end of the days is quite potentially subpar or on par with McDonald’s, all you get is a hamburger and fries.
I went to a restaurant last Friday night with Fleur. We had a date night, and we went to a burger place. We got burger and fries, and it was great. We wouldn’t have paid five or six times what we would’ve if we went to Macca’s. And yes, you can argue that it’s a better burger, of course. But was it five or six times better? Probably not. But the reason we happily paid more and they were able to charge more, is because everything leading up to the actual exchange of money was a better experience. This is the thing, as you work through your business and focus on these 7 Levers and rinse and repeat, and go through the cycle over and over again subsequently, with that, everything in your business increases. The experience, the service, the product — everything just increases that absolutely lets you easily, without question, increase your profit by 10%.
Dom: I think that’s a good point to highlight. Yes, absolutely. The 7 Levers is not just about the face value 10% increase. It’s about the other things that your business will benefit from because you’ve just gone and done them. The list was extensive, but it wasn’t even close to what will happen, and so it’s a great example. I love the parallel between the two burger joints as it were. I think it’s a great perspective for people to bear in mind that by going through this, you’re generating the very thing that will, not just make it reasonable for you to increase price, but maybe even make you believe more that you should. You look around at the environment that you’re creating, the experience you’re creating for your customers and go, “We’re worth more.” “I’m worth it,” as they say.
To build on that and to just step slightly to the side, but carrying with this idea of things that happen or don’t, one thing that I was made painfully aware of recently while I’ve been working in the consulting space (and this is absolutely applicable to pretty much anybody), is always remember — and it’s an awareness thing (it’s like the awareness with what goes on with the 7 Levers), always remember that very few people realize what it takes to deliver the thing you’ve just given them, whether it’s a service or a product. Very few people realize that. And also, it very easy for people to not realize some of the things that you’ve done for them as part of the service.
Let’s go completely off from burger joints, let’s go to garden maintenance. I think, Pete, you talked a couple of times about garden maintenance. It’s one of those completely different business. We’ve talked about all kinds of businesses today, in today’s show. So garden maintenance, physical work, and you might charge premium. At the end of the day, if somebody looks out their window and they ask you to cut down a tree, and when they look out the window in the morning, the tree was there; and when they look out the window in the afternoon, the tree’s not there, then on face value, you and the guy who’s cheaper than you did the same job. But the reality of it is if you offer even just a better service (let’s not even talk about a premium service yet), you might do things like make sure you take the wood away from the tree you chopped down. You may even make sure that the wood goes to a place where good things happen to it, recycling for example. That it may be used in some kind of reclamation thing, then your customers may be interested in that and find that a valuable thing. But if you don’t tell them (and this is my point), if you don’t tell your customers the things that you do, for what is in it for them (and this could be physical goods), if you don’t tell them the extra items in the box, they don’t see that extra money as being worth spending.
Sometimes you may need to even explain why it’s valuable. This a silicone scraper. So what? Well, because it’s easier to clean out those little corners of your juicing thing with a silicone scraper than it is with the wooden one. It’s about describing that thing, it’s about telling them what you’re giving them. I saw this with a service provider recently. The client was looking at the bill they’ve got and only said, “That’s a big bill.” That was literally the conversation, “That’s a big bill.” And the service provided shrugged. But the reality of it was, when you drill down into it, the service provider was providing all the things that they were expected to provide, but there we’re providing much, much more. They were doing some cool things. They were being proactive. They were delivering into the client and helping the client out. The client wasn’t even aware of what was being done, and they just hadn’t bothered to tell them. Their response wasn’t, “Ooh, what a lot I’m getting for the money.” It was, “That’s a big bill.”
Pete: Perception is reality.
Dom: Perception is reality, there you go. I think that’s a big thing in dealing with that pricing thing. If you go, “Oh, people won’t pay that.” Well, the only reason people won’t pay is because they don’t see the value. It’s quite simply that. To me, it’s quite simply that.
Very cool. All right, folks, so that’s our core topic for the show, increasing your average item value. Some great takeaways. Pete, you gave some great takeaways there. And again, I’m coming at this from a bit of a mindset mode. But thinking about things slightly differently with this is the way around it. All the samples we gave are all about, ‘think about it differently.’ That’s how we help people. When we work with people on their own businesses, we get them to think about it differently, so I think that’s the key here.
Pete: Absolutely. I love it. So moving on, next week, we’ve got a great conversation with Toby Jenkins who’s the author of Web Marketing That Works. It’s a great new book on a whole different ways of growing a business online. These guys run one of Australia’s biggest and best Web agencies. They are in the trenches every day, and know what’s going on with a whole range of clients and a whole range of spaces, which is very exciting. It’s going to be a very cool conversation with him.
And then as always, there’s the blog, PreneurMarketing.com. Every week, we choose the best comments from the blog that people leave on any show, whether it’s this particular show or a post that’s from this week or from months ago. We send them a copy, a signed personal copy of my first book, the infomercial-esque titled How to Turn Your Million-Dollar Idea Into a Reality. So if you are interested in getting a free copy of my physical book in the mail hand-signed by me, head over to the blog, leave a comment about what you loved about this particular episode. What are the things you’ve implemented, or going to implement, or the biggest aha moment? Whether it’s a previous episode or one of the various posts we have on there, contribute to the community and you’ll get handsomely rewarded.
Dom: As a side effect of us looking into our infrastructure stuff, folks, we’re looking at — not that Pete’s books isn’t awesome and isn’t incentive enough for you to leave us a comment, but we are looking at other things that we might start sending you. So, in addition to just being a good old member of the community and dropping us a comment, letting us know how we’re doing and things like that, there’s that added incentive of that little competition that we run. So, do please pop over to Preneur Marketing. As Pete says, there’s every episode of the show available for download, all of the show notes, links to things we talk about, transcripts, everything there, as well as all those awesome articles that Pete’s having done and uploaded onto the site recently. There are some great in-depth stuff to read over at PreneurMarketing.com, so do join in and have a look there. Is that it for this week, Pete? Should we wrap it up there and put a little bow on it?
Pete: I think we should. Let’s say goodbye to the folks. Hopefully, we’ll see you on the blog at PreneurMarketing.com. Otherwise, we will speak to you in our next PreneurCast episode.
Dom: See you soon, folks.
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Links:
Books:
The Basics of Process Mapping – Robert Damelio
Amazon: http://preneurmarketing.com/processmapbook
The Chimp Paradox – Dr. Steven Peters
Audible: http://preneurmarketing.com/chimpparadoxaudio
Amazon: http://preneurmarketing.com/chimpparadoxbook
You can try out a lot of the books we recommend in audio format with Audible:
http://audibletrial.com/preneurcast – Free trial with a free audiobook download for PreneurCast listeners
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