MBA962 Low Priced vs. High Priced Products + Free Ride Friday!

Hey everybody. Today is Free Ride Friday so make sure you hang on to the end of the episode to hear who won this week's Free ride. Every Friday we give away a lifetime membership to one of our programs. This month we're giving away easy course which is a 30 day course on how to build your own online course in 30 days. It's an online course that we sell over@easycourse.com for $500, but we give away a free ride every week. All you gotta do is leave us an itunes rating and review and you enter our weekly random draw. Then on Friday just listen in to see if you won't leave us a review once. And every Friday you get a chance to win. Alright, let's jump into today's episode. Heyo. Welcome to the $100 NBA show where it's more than just building a business. It's about building a legacy. Getting better every day with our 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 the $100 MBA, a complete business training and community online over at 100mba.net and in today's lesson you will learn the difference between offering low priced products versus high priced products. If you're launching a new business or a new product line, you need to make a decision when it comes to your pricing. And that major decision is is it going to be a low price product or high priced product? Both come with advantages and disadvantages and both of them cater to different audiences, different demographics. In today's episode we're going to go down each path. What it's like to have a business that sells low priced products. What does that all look like as well as what it looks like with high priced products. I'll be giving you some tips and strategies on how to make this decision as well as some of the challenges you'll face regardless of which scenario you choose. So let's get into it. Let's get down to business. Today's episode of the $100 NBA show is supported by the Jordan Harbinger Show. This is Jordan Harbinger's all new podcast and it's a huge hit. Jordan teaches everything from what you do in a crisis, how to cultivate resilience and grit, how to handle uncertainty and instability, and how to protect your mindset so you're always performing at the top of your game. Every episode is loaded with practical insights and material. So if you love this podcast, you will love the Jordan Harbinger Show. Subscribe today on itunes, Stitcher, Overcast, whatever you use to listen to podcasts. This has become one of my must listen podcasts. Subscribe to the Jordan Harbinger Show. Low priced products versus high price products. There are plenty of examples out there. Spotify and Netflix are great examples of a low price product. It's very low barrier of entry to start with Spotify. In fact, you can start for free and then from there you can pay $10 a month for a great service. $10 is something that you probably don't notice every month coming out of your bank account. When it comes to high priced products, Apple, Tesla, these are the companies that come to mind. These products never go on sale, they never have promotions, and their price point is reasonably higher than their competition. Now both companies are doing great. Both companies make money and make sales. So it all depends on which path you choose. So let's explore each path. The first path is low price products. Low price products are great if you're all about growth. If you're trying to dominate a market like Netflix was trying to do, they wanted to be the go to streaming service, they wanted to replace Blockbuster, want to replace, you know, hbo. So they really had growth on their mind. They had a long term plan to make sure they get as many new members, new signups as possible. So one of the easiest ways to do that is make it easy for people to sign up. They didn't invent this model. This is a model that's been around forever and been duplicated by a lot of tech companies, including Google. Google's services are quite cheap because their actual goal is growth. They want to really dominate the market. Now if you're bootstrapping your company, this is not so easy because you're going to actually operate at a loss for a very long time until you actually dominate the market. Because you know it's going to cost you a lot of money. It costs Netflix a lot of money to actually run their service. And until they have hundreds of millions of users, they're not really going to be able to lower the cost of their costs. And if you notice, even though Netflix is still a low priced product, they've raised their prices as they've grown. So at the start they were really, really inexpensive. They were under $10 and now they have different tiers and different packages that can go up to $20 or more. Still, I consider this a low priced product. It's still a very low barrier of entry. So it's really ideal for a company that really wants to grow now if the running cost of your business are low, it's pretty low as it is and you still can be profitable with a low priced product, you are in heaven. Right? You have made it because you can really expand and grow and lower that barrier of entry even to free at some point just to get people started and really work on volume. You're not going to make millions of dollars a year if you don't have enough users. So it's going to take you more users to get to your actual revenue goals. So say for example, your revenue goal is I want to make a million dollars of annual recurring revenue and you have a $10 product, you're going to need 100,000 users. Not that simple. Now obviously $10 is not much, but you need 100,000 people to part with their money to sign up with your product to hit that 1 million ARR. Plus you got account churn and losing customers and all that kind of stuff, right? And this is just revenue, right? We're not talking about profitability yet because you know you're going to have costs involved. Now if we just quickly look on the other side of the aisle at high priced products, let's say for example, your product was $1,000 and you want to hit that 1 million ARR goal, instead of needing 100,000 users, you'd need a thousand users, 1%, 1% of the number of users you would need because your price point is $1,000. Now yes, it's harder to get somebody to purchase something thousand dollars versus ten thousand dollars. But it all depends on the value you offer. How are these companies that sell expensive goods in business? It's because they really have the value. People are willing to part with their hundreds and thousands of dollars to buy a Lamborghini, for example, because they see the value in a Lamborghini and the company's job is to make sure that value is apparent. So back to low priced products. It's great for growth, but again, when it comes to revenue goals, it's going to take you more users, more customers to hit those goals. Number three, you're going to attract a certain demographic. Now please don't get me wrong, I'm not generalizing here, I'm not stereotyping here. But when you lower the barrier of entry, you lower the qualification to actually fit for your product. Let me say that again. When you lower the barrier of entry, you lower the qualification to fit for your product. So what does that mean? It means it's so much easier to qualify to be a customer of yours. When all I need is $10, that means you're going to get more of a variety of customers. You're going to get some great customers. You're going to get some nasty customers. You're going to get people that feel like they're entitled to more than what they're getting. You're going to get people that are super happy with what they're getting. Some people are going to want more than what they're getting. They're not going to be so happy with that. So you get more of a variety of customer, meaning that you're going to have more challenges on your hands when it comes to customer service. This is just the facts. McDonald's deals with a lot more customer service issues than a three star Michelin restaurant. It's just the facts. Because not everybody can afford a three star Michelin restaurant experience. Less people means less chances of an issue. The other thing to consider is the value of money is relative. $100 means differently to somebody who makes $100 a day versus somebody who makes $100aminute. Just like maybe from you and I, $5 is not a huge deal, but maybe somebody across the planet, $5 is a big deal because maybe that's what they make every day, $5. So that all weighs in their expectation for what they're actually paying for. Again, when you lower the barrier of entry, you're widening the group of people with varied expectations. Just think about it. You and I sign up for Netflix, but so does Kevin Hart and celebrities that are on Netflix, right? But most of us are not going to stroll into a Bentley dealership like a celebrity would. Like Kevin Hart or LeBron James. You get the point. Let's move on to high priced ticket items. And they have their own challenges. The number one challenge is you have to convince the buyer that you're worth all that money. It's going to take more effort for you to get them to buy your product. Think about it. If you're going to go out and buy a car, let's say a Tesla, for example, the amount of research and reading and then going to the dealership and going for a test drive and then budgeting all the stuff that would have to happen before you actually buy, it's a long series of things, right? It's a long series of steps. Why? Because the stakes are high. Because you're parting with a lot of money. But I would sign up for A$10,$20 subscription right then and there. I probably wouldn't think about it too much, especially if I Can cancel any time. It would take me a fraction of the time to make that decision. But that's the challenge of the high price ticket product. But there are benefits, of course. It's much easier to reach profitability. There's a reason why Apple, with their expensive products are the most profitable company in the world. Apple as a company is valued at $900 billion. It looks like it's going to be the first trillion dollar business. But the most shocking stat is that they have nearly $270 billion in cash reserve. That's how profitable they are. They have almost 970 billion with a B dollars in CA. And it's not by accident they're profitable, their products are expensive. So it's a whole lot easier to be profitable when your price point is higher. Number two, you're dealing with a smaller pool of people when you're more expensive. Now Apple is the exception because there's such a huge company. But if you're a luxury brand in your marketplace, whether you focus on luxury travel or high end iPhone cases for that matter, or a high touch software product, you can price your product a little higher than your competition. You could be more profitable. And again, you're going to need less customers to hit your revenue goals. But in my opinion, the biggest challenge of a high price ticket item is that how do you get started? People don't know who you are yet. You need some customers, some traction. It's hard to convince people to pay a hefty sum, a hefty amount of money for something I never heard of. So let's get to the point where, how we choose now, if you're just getting started, it's your first business. I highly recommend you do a staggered approach. It's so important in my book to get that first win, to actually make a sale, to actually be in business. So I definitely would start with a low tier of your product, which is a low price product where allows people to get into your product, get into your business and take what you have to offer at a low price point. But I would have a middle tier at least and a high end tier. This is kind of like having three products in one. By tiering your products, you get to see how profitable each tier is. And of course down the line you can choose to change these tiers or make the whole business just one tier. You might be saying, hey, I don't have that many customers sign up for my highest tier, but it's the most profitable one and the customers that buy from that tier are the ones that give me the least headaches. So by tiering your products and pricing them accordingly, it really gives you a chance to split, test and really see what works best. It also gives your customers options. Now you can run this test for a few months and then you can modify the pricing and you can then make a decision, hey, which model of business do I enjoy the most? Which one is best for my business? We changed our pricing in our tiers at Webinar Ninja, our software company, a whole bunch of times, at least half a dozen times. And each time we would try to optimize each tier, change a price here, add some features there, add some more value there. But one of the things that we really did is really focus on the highest tier we have and try to make sure that it's geared toward that high tier customer giving a maximum value, showing them that it's worth it to go for that expensive price. And that's been really helpful because that high tier often offsets, you know, maybe the low tier that is not as profitable. Guys, I got more on today's topic. But before that, let me give love to today's sponsor. Pitney Bowes is the industry leader in mailing and shipping solutions. No matter what you send or how often, Pintney Bowes makes it easy to save time and money on your office mailing and shipping. Simply weigh, print, mail and save. It's time for you to start skipping the line at the post office. Penny Bowes lets you calculate and print exact postage so you never overpay or underpay. And did you know that USPS postage rates just went up in January? Penny Bowes will save you $0.03 on every letter. You'll even get access to USPS retail rate discounts of up to 39% off. Whether you're sending a letter or package, you'll save time and money with Pitney Bowes. Plans start at just $5 a month. And for our listeners, Pitney Bowes is offering a free trial so you're sure to find the solution that's right for your business. Visit pb.commba and try it. Free terms apply CSIP for details, that's pb.commba and we thank Pitney Bowes for sponsoring the podcast. To wrap up today's lesson, it's really important for you to test, test, test. And then one of the easiest ways to test pricing and whether to go low or high is to offer a few options. Segment your business into low, medium and high. Three tiers is enough for people to have some options. This is if you can't decide, but if you already know, if you're like, no, I want to go premium. I want to go high price product. I want to go high profitability. Or you might be like, no, I want to dominate my marketplace. I want to grow. I'm going to go low price and allow, you know, people to be able to come into my product and I can grow as fast as possible. If you're on the fence, tiering your product really helps. And yes, you can tier with prices that are drastically different. With Webinar Ninja, our lowest kind of barrier of entry is $49 a month, but the highest is 199amonth, four times as much. And we also have annual plans that put them over 2,000, so you get the point. All right, that wraps up today's lesson. I hope you loved it, but today's episode's not over. It's Free Ride Friday. I got a giveaw. A lifetime membership to EZ course. This is the course we're giving away for Free Ride Friday. If you haven't left us an iTunes rating and review, do it right now. You'll enter our weekly random draw for next week. We choose a random person who's left us a review. Read out the review and that person wins a free ride. Alright, let's see who won this week's free ride. And the winner is. SK508. SK508 says five stars. Great show. This has become one of my favorite podcasts. I learn something in every episode and I actually listen to every new episode as they come out. Well, thank you SK508 for that awesome review. Your mission is to email me at Omar MBA net so you can claim your free ride to ezcourse, a $500 course on how to build your online course in 30 days. If you're listening right now and haven't left us a review yet, go ahead and do that right now. By leaving us a review, you enter the draw for every week so you have a chance to win every single Friday. All right, before I go, I want to leave you with this. When it comes to pricing, experimentation is the only answer. No one really knows what the market can bear or what your market finds reasonable for the value you offer until you test. But when you're testing pricing, make sure you test your sales copy and the way you present your products or services. Maybe you're not conveying the value enough. Maybe you need to sell them on your product more rather than lower your price. Alright, I'll check you on Monday's. Episode where we have a fantastic guest teacher episode. We have Dr. Christopher Kroner, who's going to teach you how to never hire a bad salesperson again. I'll check you on Monday. I'll see you then. Take care of Sam.