email marketing

Developing a Pricing Strategy for Your Sales Funnel

sales funnel pricing strategy

While there are many components of a sales funnel, one important thing you need to think about is how you’re going to price your sales funnel.

You should already know that your first few interactions are going to be ‘free’  when you’re trying to build your list, but now we’re going to look at pricing your sales funnel in a little more detail, because it’s an important consideration. There are steps and rungs and you’re going to be increasing the ‘cost’ of what you offer very slowly as you go.

The Free Line

The first step of course is completely free. This is your YouTube video or your blog – it’s something that people can consume completely for free and then just leave without any kind of commitment.

The ‘free line’ is often the term used to describe the cut-off point where your content and your value stops being free. And often this is shown in diagrams to be the entry point of the funnel. As they enter the funnel, they commit to start paying.

Things that go above the free line might include:

  • Blogging
  • Guest blogging
  • Ezines
  • Ebooks
  • Press releases
  • Free reports
  • Camtasia
  • Seminars
  • Presentations

Having a ‘free line’ and knowing where precisely your free line sits can help you a great deal to manage your business and to test what is working well for you.

What’s interesting is that more and more marketers are now talking about ‘moving the free line’.

Specifically, they are discussing moving the free line down and making more of the things they used to charge for free.

  • this is a great way to get more people to commit to the funnel
  • and to get ahead of the competition

Many people even recommend that you give away your very best stuff – the company that provides the most value above the free line is often the company that wins!

Collecting Details

While it’s possible to think about your business like this, what you should also recognize is that there is another line the ‘details’ line. This is an important thing to understand because while a visitor isn’t ‘paying’ you when they sign up for your mailing list, there is still a cost to them, that being their details.

  • this is still a transaction
  • and you still need to be able to offer something worthwhile to them
  • in exchange for those details

What’s more, is that this moves them inexorably toward buying from you.

Once they’ve made the step of handing over their details, they have already made one kind of ‘payment’ in a sense. Now it is going to seem like a smaller step for them to move toward making a small purchase, especially once they’ve made that commitment.

Choosing Prices

pricing for sales funnelsNow you know where your free line is and you recognize that it is movable by nature, the next thing to consider is the precise price you’re going to set for the items that are below the free line.

This is important because this is still part of your puzzle.

We’ve talked about selling one smaller item to get people ready to pay for more expensive items but very often your sales funnel will go further than this and will involve multiple purchases, each getting more and more expensive.

But at each step of the way, you still need to ensure you are providing value and offering something in exchange for what you’re charging that is worth that amount.

How do you work out what your products and services are worth?

There are a few options…

1. Do your market research.

Look at what other brands and companies are charging for the equivalent products and offer the same.

2. Look at the ways products similar to yours are calculated.

For instance, if you are selling items you purchased wholesale, then you might well use the typical ‘keystone pricing’ approach. This means that you are going to charge your end customer twice the amount that you paid for the product, thereby making a 100% profit.

3. You’ll also need to calculate your COGS.

COGS is ‘Cost Of Goods Sold’ and tells you how much each item you are selling cost you to manufacture. Working this out tells you how much you need to charge in order to make a profit. You can then think about the amount you’re going to need to grow and scale your business, while also maintaining a healthy lifestyle.

4. This doesn’t work with ebooks because you don’t have any overheads.

The cost of manufacturing an ebook is nil! So how can you be sure you’re offering the right value for money? Simple – you test the market and see what your ebook will sell for. Look at similar products but then try tweaking your price to see if it overall increases your profits or decreases them.

5. Read your metrics.

As you get more advanced, the only real option is to closely watch your metrics and see what is working. This means, for example, identifying how much a customer is worth to you once they reach the 5th rung. Because what you might find is that it’s actually worth selling the first item in your sales funnel at a loss, if it means that you can subsequently increase the chances of selling your last item.

The only way to know this for sure though:

  • is to carefully monitor your sales and see who is buying what
  • and how much it is earning you at each point in the funnel

Contrast, Discounts and More

Finally, remember that you need to leave a little ‘wiggle room’ in your price. If you’re going to make a big sale quickly, we’ve already discussed that you will want to increase urgency and scarcity. One way to do this is by offering a limited-time discount but that means you need to make the product expensive enough that you can offer said discount and still be making a profit!

And if you’re selling multiple products, then there are various different ways that the costs can interact that you also need to take on board. For instance, when you are selling more than one item you might use a strategy called ‘contrast’.

This means that you’re placing a cheaper item next to a more expensive item.

This makes the more expensive item appear more premium and it again introduces that idea of increasing the price in small intervals. A customer might convince themselves to spend $10 more as that’s a small price to pay to get the very best (as they were buying already anyway).

Conversely, if the customer wants to be frugal, then they might buy the cheaper item because it will appear like a better deal when next to the more expensive option. They can thus overcome their buyers’ remorse by saying to themselves ‘okay, well then I’ll just get the cheaper item’.