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Don’t be afraid to raise prices to increase revenue by x11

The right pricing that helps businesses grow is not guesswork. According to McKinsey’s report just a 1% improvement in price results in 11.1% operational profit.

Margo Ovsiienko

A few months ago stumbled upon a page with a pricing teardown and after watching an amazing video with Patrick Campbell I understood how much math and analytics stay behind the right pricing strategy. It is not guesswork, it deals a lot with maths and analytics.

In a recent price teardown, Patrick Campbell analyzed two subscription companies  – Dollar Shave Club and Gillette on Demand. After surveying  6,441 prospective customers his team had come to the conclusion both companies were losing money by choosing the wrong pricing strategy.

Heavy Shavers Want to Pay More

The more often clients use a product, the higher price are they willing to pay for it. The survey proves heavy shavers are willing to pay more, while those shaving occasionally would not stay with a subscription for long.


Source: ProfitWell

Marketing pro tip. Define what type of clients is willing to pay more and would have a higher LTV (life-time value). Map out what makes them different from the rest. Adjust your marketing campaigns to appeal to those clients and generate higher LTV leads and double your sales. By reducing time to lead you can increase conversion rate.

Clients with a high LTV are in high need of your products and solutions – they have a burning problem to solve and your product may help them move from state A (when they have a problem) to state B faster (happy having solved a problem).

Example. Let’s apply a simple LTV equation to see what is the LTV of an average Starbucks customer. In Starbucks the average life span reaches 20 years. Taking into account that the average customer value per week is $24.30,  the LTV for a Starbucks customer would be $24.30 (av. customer value) * 52 (number of weeks/year) * 20 (av. life span) = $25,272.


Source: Kissmetrics

READ ALSO: How To Convince The Client To Buy

Youngsters like splashing out… sometimes

Setting lower prices doesn’t always guarantee attracting a younger sector of the market. A Gillette’s and Dollar Shave Club’s younger clients in the age 18 to 24 were willing to pay more than the standard price for both products – $13.08 instead of the standard $6 (Dollar Shave Club) or $7 (Gillette).


Source: ProfitWell

Marketing pro tip. Continuing running inbound marketing campaigns without drawing conclusions after a set period of time may lead to failure. You may presume you are targeting the right audience. But after a deeper analysis, you understand you have reached the wrong segment.

Start with identifying what group of clients is paying the most. Afterwards, map out what makes them special in comparison to other segments. Client characteristics will later be laid into persona attributes to target with marketing campaigns.

Example. Examine where the majority of your SQLs come from and what their profile is. You would definitely need your analytical data to rely on. Identify such attributes as geography, demographics, and behavioral aspects. All these data will fuel your online campaigns and help reach exactly the right audience that will be willing to pay more.

Upsell leads to a higher client LTV

Gillette doesn’t sell add-ons – but wipes, face wash, post shave possibly because it doesn’t stay in line with a brand. On contrary, Dollar Shave Club started to penetrate the bathroom offering multiple add-ons. Those customers that buy Dollar Shave Club are willing to pay more.


Source: ProfitWell

Marketing pro tip. By implementing an upsell strategy, your would cut cost of acquiring each $1 from a recurring client by 68% compared to getting each dollar from new clients.

Take your time to understand how your clients define success that your products helps achieve.

Understanding what are the main priorities of your clients helps create the right offer for additional services. Once your have mapped success indicators, you’ll think of which customers would have a higher need of using additional services and potentially may be heavy users of your products.

If you can’t back the value of your add-ons, you won’t successfully upsell. You will also want to upsell to clients that will certainly benefit from an addon. Otherwise, clients will churn after some time having seen no viable results.

Example. Are you thinking of approaching upselling strategy, but have no idea where to start? Steli Efti from Close.io is recommending the easiest and the fastest way to start out.

His recommendations are framed into 3 steps:

  1. Take a piece of paper and a pen.
  2. Put down 10 names of clients you are content with right now.
  3. Get them on a call today or send an email. Ask them how you can deliver a better product or service. Invite them for a brief 15-minute chat online and talk.

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