MBA2071 How to Discount Your Product While Maximizing Revenue

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Welcome to the Hundred Dollar MBA show because your business needs you at your best. That's why we deliver daily 10 minute business lessons for the real world. I'm your host, your coach, your teacher Omar Zenholm. I'm also the co founder of Webinar Ninja, an independent software company I started with my co founder back in 2014. And in today's episode you will learn how to discount your product while maximizing revenue. The advice raise your prices is often shouted from the rooftops in our space. In my opinion, blanket advice like that can be very dangerous because increasing your prices doesn't necessarily mean you will increase revenue. I'm going to explain why in today's episode. The reason why people do shout raise your prices is because they want you to make more profit. They want you to increase your margins. And that in spirit is not a bad thing. But in practice you got to be careful when it comes to your prices. You need to leave enough value on the table for your customers not to feel like they are getting ripped off. You want them to have a delightful shopping experience and buy more. So in today's episode I'm going to explain some tried and true techniques to discount your product but still make more revenue. Let's get into it. Let's get down to business.

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You might be asking yourself how? How can I charge less money but at the same time make more money? Well, it all boils down to value based pricing and the best way for me to explain value based is to give you an example that you're probably familiar with. Have you ever walked into a store, let's say a clothing store, and they're having a pretty good sale? Your immediate feeling is, this is great. You might think, I've always wanted to shop here, but now I have a reason to. It's like the store gave you permission to buy a few extra things for yourself. You go in, you look around, you see a bunch of great stuff, you try them on, you love the way they look on you, and you end up buying a few pieces. You walk out feeling like you're a winner, like you won the day, you got a deal. You go home and you brag to your family and show them, hey, I know how to shop. Well, you just engaged as a customer in value based pricing. What happened here? Let's break it down. The store did a few things here that actually caused them to make more money than they normally would despite discounting their product. The first thing they did is they turned a non customer into a paying customer. So right off the bat, they're turning $0 into dollars. Okay, Many people want to buy your product, want to buy your service, want to try your software, want to check out what you're doing, your course, or your training. They might have heard of you for some time, they might been following you on social media, they might love your content, but they're just subconsciously waiting for an excuse to be a customer to buy from you. And that's what a sale is. It's an excuse to buy. So in the example I gave you, the store gave that person an excuse to become a customer. They made a decision, hey, I'm going to go and pick up a few things now that they have a sale. The second thing they did here is they incentivized you to walk out with more items with a bigger car, with a higher, what's called a lifetime value. And you'll see that in these sales, they'll often push for this, like buy two get one free or buy one get the second one half off. And the reason why they're doing this is because they want to move more product. They want you to buy more things. They want you to get more in love really with their product and become a super customer. Sometimes you don't even need to do that. Sometimes if they say, you know, we have 20 to 30% off or 20 to 50% off even, sometimes those discounts are causing people to feel like, hey, let me pick up a couple of items that I Need anyway. Or I've been thinking about buying while the sale is here year, they have a reason to buy. So they could have just walked by the store and gave that store $0. Or now they're walking out with maybe a few hundred dollars worth of product even though it was discounted. Now, even if the person that's shopping there in this example is a return customer, they're more inclined to buy more to make up for that discount. What else is happening? The customer is happy. They're walking away from the store feeling proud of themselves. They have good feelings associated with your brand and your business. This is called brand affinity. People feel good about you and your business. They don't feel like they're being ripped off. They don't feel like you're being greedy. They actually feel like, hey, I like this place. What else happens? You go home and you tell others. Viral marketing. You might even tell your friends, you gotta go, the sale's gonna end tomorrow. So I'm here to tell you that discounting gets a bad rep. It actually does a lot of good for a lot of businesses if you do it right. So in my opinion, having a sale is actually a good thing for your business. But there's a few ground rules I have and a few pieces of advice I would recommend you take on. Number one, be selective about how often and when you do a sale. You can't be running sales every day because the meaning and the significance and the urgency to buy during the sale will not have the same effect. In my experience, when I run a sale to max three times a year, that's kind of the sweet spot. Number two, incentivize volume or longevity. So I run a software company and in software, especially SaaS, software as a service, the name of the game is you want low churn. You want as many people to come in and not leave. So if I'm running promotions, I'm going to run promotions that incentivize people to stay. That means running promotions on annual plans so I'm guaranteed they won't leave me in a month or two. I incentivize by adding bonuses that help them implement and use my product. I incentivize them by making the actual discount apply to their account for life. So even if, for example, they want to downgrade, they'll downgrade and not leave me because they want to keep that discount for as long as they're a member. That's better than churn. It also works the other way when they have a discount that applies to their account for life. They're more inclined to upgrade later on because they can use that code or that discount and carry it to their next tier. The other thing I recommend is having solid windows for these sales. 3, 4, 5 days run the sale, have a strict deadline and when the sale's over, it's over. And that will teach people that you mean what you say and your deadlines and scarcity are real. And that when the next time there's a sale, they won't miss it. You got to have the discipline to say no. The other thing I want to mention is that if you're in a somewhat competitive space, your growth and your expansion in your market is really important. The more customers you have, the more word of mouth you're going to have. The more reviews you're going to have, the more people are going to have talking about your product, using your product, the more it's going to be easier for you to be a household name or be a popular name in your niche or in your marketplace. So volume actually helps you in the long run versus having higher prices and less customers. Yep, you have less customers to serve and less costs, but it's hard for you to attain new customers because you don't have all that word of mouth working for you. This is why I always say to people, if you want to raise your prices, you should do it later on after you get some traction in your business. This is what a lot of businesses do where they have very competitive pricing in the first few years, they get momentum, they get a good slice of that pie in the market, and then they slowly raise prices for new customers because now people know who they are, they know they're valuable, they're trusted. You're basically lowering your prices or discounting your prices or running sales to gain people's trust and build that brand equity for your first few years so that you can then leverage that brand equity and demand higher prices.

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To wrap up today's lesson, discounting your product, running impactful sales, encouraging your customers to buy more from you and increase the average revenue per customer can really work in your favor. Here's the big one that I found when you leave enough value on the table, meaning that your customers don't feel like they're getting a bad deal or raw deal, they feel like, hey, I'm actually getting a lot of value for what I paid, they're less likely to stop buying from you or to cancel. This is imperative, especially when the economy is not doing so great. Like these days, people are less likely to cancel you, your product or stop buying your product because you left enough value on the table. So they're more likely to cancel products that are just really expensive that really hurt. They're not such a great deal. They'll tend to go to somebody like you to buy instead of someone else. So be mindful of this, especially during tough financial times. Discounting your products doesn't mean being cheap. It means being strategic and giving an opportunity for your customers to buy more thanks so much for listening to the $100 NBA show. If you love what you hear, the best thing you can do for us is to hit subscribe, hit follow on whatever podcast app you're listening to right now, whether it's Spotify or Stitcher Radio or Himalaya Overcast or on every single one Apple Podcasts, of course. Hit subscribe, hit follow. And while you're at it, leave us a review. We'd love to hear what you think of the show. Before I go, I want to leave you with this. One of the beauties of an online business is that you can pretty much have a sale for new customers all the time. What do I mean by that? Well, say, for example, you wanted to do an offer right now you can email your whole list. They got the offer. Now you probably don't want to do this every day. You probably want to do this a few times a year. But what about the customer that joins tomorrow? They never saw that offer. You can customize an offer for new customers only and make it a part of their onboarding sequence as they join your email list, giving them a reason to buy. Thanks so much for listening and I'll check you in. Tomorrow's episode Free Eye Friday. I'll see you then. Take care.

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