Pricing vs. LTV

Pricing vs. LTV

Lesson Details:
March 03, 2020

Video Transcription: In this video let's begin talking about your product pricing versus your LTV lifetime customer value this is something that you should begin thinking about during the business planning stages of your business because if you keep this in mind it's going to help you plan for better revenue sources and stronger revenue sources because a lot of people focus on price and price is very apparent and vivid but it can be a vanity metric for many businesses a more important metric is LTV lifetime customer value or lifetime value of a customer essentially how much you make from that client long term the goal for most businesses is to turn people into long term customers for years not just to sell to them something now and forget about it and clients become long-term customers for years when they buy and love the value they get if they love the value they get they're gonna come back if they don't love they're not gonna come back and for you you can think of it like like if a person buys once it's still pretty nice but if they buy from you monthly that's a twelve hundred percent increase annually and if they buy something next year and next to your monthly that's a tremendous increase in revenue from the very same client and most first-time entrepreneurs they focus on making more and more sales from new customers but often it's easier to sell to existing customers and maximize the revenue you get from them long-term then to keep finding new customers so during the planning you really want to understand how can I make the initial engagement easy and what can I sell long-term and can i upsell long term not every business is a fit for this.

So let's talk about how to think about maximizing your lifetime value ideally you can combine a situation where a potential client can have an easy entry into your business some people call that onboarding plus for that client what can they consume or buy long term those are your back hand sales an entry that easy entry the onboarding that can be inform of something free or some kind of a very cheap product online you see this commonly with the freemium business model where people give away a lot of free things often digital products because digital products have no cost to reproduce and if the client likes that digital product they might also buy more expensive products so when you are thinking about what can I sell to these people long term think about the possibility and likelihood of long-term purchases it may be that this is not possible for some businesses you just sell to clients once and that's it in that case you want to maximize the price but if you can sell long term you want to think about okay I can decrease the initial price by a certain amount but what is the likelihood of people buying my second item my third item for some businesses it's likely for some businesses it's less likely and every situation is different if you have historic data like you've been in business for a while you can take a look at your historic data and see how many people actually go on to buy a second and third purchase from you so that you can calculate an actual percentage of people who actually go on to buy your second and third product but if you're just starting out you can estimate this and track it long term and anyway always try to improve it whatever the historic data is it doesn't mean that that's going to be what its gonna be in the future in the future you will always want to improve your upsells additional things to consider our benefits for example even if you sell something for a cheaper price which might cut your profit in the short term it might even make you unprofitable you might you might lose money in the short term but if it gives you better branding because people are actually engaging with your product if you are not losing customers to your competitors those are all benefits that you can consider because even if you lose money you know with the first purchase you might make money with a third fourth and fifth sale to those clients additionally this is how a lot of ads are run a lot of ads they are not necessarily profitable in the first sale but if the company who's advertising can keep the clients long term and has historic data on how many clients on average they keep long-term and how much clients spend long-term.

Then they know how much money they can spend on ads even if they lose money on ads in the beginning and of course there's another side benefit if you sell on platforms like Amazon even like udemy like Etsy sometimes having a lot of sales and a lot of activity boost your ranking on those platforms and that's something to consider when you're pricing your product because if you boost your ranking on those platforms you get more organic sales which make up for the smaller profit margins if you keep your prices low so we're gonna talk about these in the coming videos and this is something you want to really keep in mind during the planning because you want to think through well what kind of offerings can I create to upsell is it possible so sometimes it's a parent and sometimes you have to think outside the box and always think about well at the end of the day how does this work out financially because at some point you can no longer keep reducing price and you can't neglect profitability too long so there are all these considerations and in the coming videos we're going to discuss further how to maximize the lifetime value you get from each customer and all the techniques with it.

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