Die Preisregel, die den Gewinn vervielfacht hat

0:00So, here's my rule of thumb for upsells, taking into account that 20% of customers have far more spending power than the ones below. Now, remember, we had $2 here, and the next level had 28. So, it's 14 times more wealth between just the bottom 50 and the next 40. But, just using the Pareto principle in terms of how it can apply to this pricing, like you not understanding this is why your business is not making as much profit as you want, all right? So, my rule of thumb is that for every new tier is that you want to 5 to 10x your price and expect 20% of people to take it.

0:36Okay? So, here's how it works. So, let's say that you sell 10 customers, okay? So, you sell 10 customers, do do do. Let's do it again. Okay? Now, if you have eight of these customers at $10 per month and you've got two of them at $50 per month how much am I making on these guys? I'm making $80 per month in total on the bottom 80. And then I'm making $100 per month on my top 20% on my top two. And so, by serving these two customers differently, we double the revenue of the business, which by the way, again, is my rule of thumb. I want each tier to bring me another double, like another full amount of revenue. Otherwise, I'm like, I don't know if it's worth creating the actual extra constraint of operations, right? But, here's where it gets even nastier. Let's say that this covers the majority of our overhead.

1:43That means that this extra $100 might contribute 10 to 1 compared to this to our bottom line. And so, sometimes when you make a move like this, if you were here and you had $80 and you were living your life on this 80, right? It's like, well, maybe your your your cost is 70 and you're taking 10 home. If you add this $100 in and maybe the cost on this is 20, you've got 80 left over. We 5x the profit. So, let's say our profit before this was 10 a month.

2:10And then we added this in and we had $80 a month in profit from this 100, right? Look at the difference in profit. We go from 10 to 90 just by adding this tier. And so, the reason your business is not making as much money and you're not making as much money as you want is because you're not priced appropriately for the people who actually have the money to give you. And so, to maximize revenue, you can think of it with four tiers of pricing. And to be clear, you don't need to serve everyone and the first product you have may not be your base tier. All right, so you might start here. I don't know yet.

2:45I don't know your business. But this is what you can walk through in terms of thinking through the pricing for your products and services. So, let's assume that we have 1,000 customers, all right? So, on our on our our base tier, all right? So, this is the lowest, $10 a month and let's say we've got 800 customers at this level, okay? Now, our second tier, we might have it $100 a month, so 10 times that price with 20% taking it, all right? So, that means we're going to get somewhere in the neighborhood of 200-ish people who would qualify for this tier. Okay. And the next tier, we still have to follow our rule, 5 to 10x. So, that means we're going to be at 500 to 1,000 a month for this next tier. Just to keep it simple, I'm going to do 10x cuz it's nice and clean. All right? And so, here we're going to have maybe around 40. Now, you're like, wait, I thought we had 1,000 customers. This would be 160. I'll redo the math in advance so you can see it. All right?

3:38Now, our next tier might be, again, 5 to 10 times this and so, we might be somewhere in this 5 to 10,000 dollars a month, all right? And so, times around eight people. Okay? And so, if you're looking at this, you're like, "Holy cow, that's uh those are very big differences in price." Yes, but so they they reflect how different the spending power that exists within customers is. All right? And so, the main takeaway from this and is that if you're going to have an upsell, a very small percentage people are going to take it. And so, you have to make it worth it. And so, people will have these I'll go 100 and 129. It's like it's the same pitch. It's the same price. The willingness to pay for that customer is the same. Let me show you how I've actually translated this into my own business. All right? Well, this and you can ignore the actual numbers of customers, but what do we have here?

4:33Ah. We have school. And then at $100 a month, what else do we have? We have school. This is our hobby plan. This is our pro plan. And so, for me, the next number is $5,000, which is L1. And what's the next number after that? $35,000. Huh. Almost like it's between five to 10 times the price, which is L2.

5:01And then, what do we have after that? We have something that's $135,000. So, that's four times the price, right? And this is L3. And what do I have underneath of that? No money because it's a portfolio company. And so, the thing is is it may take some time to build out this entire thing. I didn't start with school. I started building, you know, uh you know, our brand. Uh this is to be clear just our advisory practice um that we have at acquisition.com.

5:28And so, I'm just saying like knowing this doesn't mean you need to do all of this at once. It takes years and it does take operational chops to pull this off, right? You want to add tiers one at a time. My tip though is to start as high up as you can on this ladder for a few reasons, right? So, the Tesla example I gave earlier, the branding from top down versus bottom up is much stronger. Like Honda making a better car is tough versus Rolls-Royce making a Rolls-Royce light. It would be easier play for them from brand position.

5:53The next reason is that I prefer to start with the unscalable. Why? Because it's easier to operationalize it serving these people because one, they actually, believe it or not, as a percentage of net worth, this is actually lower than what this is for somebody who's poor. Right? If you have uh $10 uh 100 grand is 1% of what you've got. If you've got $1,000, 100 bucks is 10% of what you got. And so for you, you will actually be more demanding for that 10 that 10% or that $100, reasonably so, than somebody who's giving 1%. But from a business perspective, the 100 bucks versus the 100 grand, it's a gigantic difference.

6:32You have an easier customer to deal with that has lower demandingness, but it requires, and to be clear, to get that $100 to equal 100,000, you got to get a thousand of those people. So, is serving the one customer for 100,000 easier than serving a thousand at 100? As somebody who used to sell $100 gym memberships, for sure. And if we were to look at this from a profit contribution perspective, like what is actually dropping to the bottom line? It would look like this.

6:59All the profit is here. Just like all the wealth is at the top. So, you have to do more and charge more for it to people who can afford it. And the amount you do for a few people is almost always worth it for the far greater price for those people who are willing to pay it. If you're a business owner and you are not growing as fast as you like, I'd like to give you a free gift. So, my team and I put together the $100 scaling roadmap, which is basically 200 hours of us looking over all the portfolio companies we've had and what stages of growth they went through and more importantly, where they got stuck and how they got past it. And so we broke it in these 10 stages and we made this little kind of quiz thing where if you put in your business information, it'll tell you where you're at and the most important part for you, what to do for each of functions of the business across product, marketing, sales, customer success, recruiting, IT, human resources, and finance. And so, no matter what you're struggling with, someone else has already struggled with it and solved it. And so, I'd like to give you this thing absolutely free. You can go to acquisition.com/roadmap, plug in your business information, and if you want us to actually help you deconstruct the business, and you're trying to scale, we'd love to help you out. On the thank you page, you can just book a call with my team, and we will look at your business, see if we can help, and if we can, we'll invite you out to Vegas, and we'll do this in person live.