THIS MAGICAL MARKETING FORMULA CAN LITERALLY MAKE YOU A FORTUNE (And please don’t freak out – I’ll explain it fully in plain English):
So I had a bit of an epiphany today after talking to Perry Marshall.
We were discussing his observation of a natural derivative of the 80/20 principle (which you may have heard him review previously)…
If 80% of your profits come from 20% of your customers, then 1/5th of your customers should be willing to pay 4 times as much.
For example, if you’ve got 1,000 customers each paying you $100 (1,000 x 100 = $100,000), there are likely 200 customers in that mix who would pay $400 (200 x 400 = $80,000).
So by just adding another level at 4x the price, you should be able to add 80% to your income.
Of course this assumes each level is equally well marketed, copy-written, etc., and that you’re willing and able to deliver the goods at the higher price.
But let’s make that assumption for the purpose of illustration and take this thing deeper down the rabbit hole to see where it leads us…
Because by the same principle, 20% of the 200 should be willing to pay $1600 (40 x $1600 = $64,000)…
There should be 8 people (20% of the 40) in the mix who’ll give you $6,400 (8 x $6400 = $51,200)…
And quite possibly one or two people willing to give you $25,600.
Adding this all up, you can see how much money you might be leaving on the table by marketing at only one level:
$100,000 + $80,000 + $64,000 + $51,200 = $295,200
In other words, by filling out the funnel with offers at all the reasonable price levels, we could be making $295,000 vs. $100,000 from our fictitious system.
Now here’s how Glenn summarizes it all with the magical marketing math formula:
What this says in English is that the TOTAL amount you COULD be making can be easily predicted by what you’re making with the primary level. Because every new level–if priced 4x as high as the previous–adds 80% of the previous level in gross income, you can just sum across the number of levels you plan, taking 80% of gross income at every step.
It also gives you a kind of neat way to determine HOW MANY levels make sense for your overall business, and where the point of diminishing returns kicks in. (In the example above, we probably wouldn’t want to go to a fifth level because we’re only likely to attract one or two people at $25,000+ … although if you were operating in a business model where the $25,000 product wasn’t all that hard to make available and deliver if someone wanted it, it still MIGHT make sense)
My question for you is…
After seeing the money you’re leaving on the table, how many of you now want to smack yourself in the head with a spatula?
Don’t do that.
I’ve got big gaping holes in my own product and service funnel which I’m now passionately working to fill.
Hindsight is 20/20.
OK, now that I know I’m not causing massive brain damage there’s one MORE observation I want to leave you with…
Because before you all jump through your computers to argue with me, let me say that I KNOW the math is far from perfect. There are LOTS of things that can interfere with these predictions in the real world. And the model doesn’t account for the fact that you can also go DOWN in price.
For example assuming a large enough prospect list, you should be able to get 5x as many buyers at a price point only 25% of your primary level… so in the example above we’re actually underestimating the value of filling out the funnel by 5,000 x $25 = $125,000…
But let’s not go there.
Because even though the math isn’t perfect, the PRINCIPLE is…
If you’ve got a reasonably sized group of buyers, there’s a good number of them–might be 22%, 18%, or even 10% or 30% in some cases–who’d pay you a LOT more for something at a higher level.
And you can approximately determine whether (and how many) new levels might be worth pursuing by estimating the income with this magical marketing formula.
There… now don’t say I never give you anything!
Onwards and Upwards,
Dr. G 🙂
PS – Here’s a free spreadsheet to help you do the math.
PPS – To attract customers most naturally interested in climbing to the highest levels of your pricing funnel, you absolutely MUST implement the methods I teach in www.HyperResponsiveMarketingSecrets.com