We know that 2023 will likely be a challenging year for businesses and consumers, but with a clever strategy, you can grow your business and succeed, even during tough times.
1 IDEA – 1 CHALLENGE – 1 QUOTE
IDEA FROM ME
THRIVE WITH THE RULE OF 5
The reasons for the very challenging economic situation are all over the news so I won’t repeat it. A few sectors will probably do well, like solar PV, but most will have to strategise carefully.
I wrote about “Hope is not a strategy” mid last year, where I mentioned a few things entrepreneurs and business owners/leaders can do to navigate the significant headwinds, like cut expenses, consolidate brand portfolios and limit debt.
But of late, I have been implementing and recommending an expansive strategy to grow and succeed, even during tough times.
Part 1: Process
I kept the file open in my mind about something Donald Miller, the author of one of the books included in my “Best brand strategy books: 12 lessons from the 12 brand books”, wrote. He wrote about how he published a best-selling book but did not capitalize on it, so the opportunity faded away. Then, when lightning struck again with another best-selling book, StoryBrand, he ensured he had a system in place to turn a once-off win into a sustainable business. Makes sense.
So, a system or process is important. But what process? Well, StoryBrand offers a course and workshops. Makes sense.
But how should the additional services be priced?
Part 2.1: The rule of 1/5
I am aware of a study that found that consumers are generally prepared to pay 1/5 more for an upsell. So, there’s that.
I am going to call this the “rule of 1/5”.
Part 2.2: The rule of 1/5 x 5
Then I heard about the following from two authors, Russel Brunson and Jeff Walker. The authors referred to a study that seems to be a rule of thumb for those in the know and goes more or less like this:
1/5 of customers are willing to spend 5 times the amount they spent on the initial purchase for an upgraded version of the offer, and 1/5 of the customers that upgraded are willing to spend 5 times the amount they spent on the upgraded version for a further upgrade. So, the upgraded versions obviously need to offer significantly more value. Okay.
I will call this the “rule of 1/5 x 5”.
Practical examples:
Most businesses offer once-off products and services, but to survive and even thrive, it would be wise to implement the “rule of 1/5” and/or the “rule of 1/5 x 5”.
Rule of 1/5 applied:
Initial offer: Pre-recorded course
Price: $200
Number of customers/enrollments: 100
Revenue: $20,000
Upgrade 1: Add a coaching call
Price: $200 + 1/5 = $240
Number of customers willing to upgrade: ~50% of 100 = 50
Additional sales: $2,000
Potentially increase sales from $20,000 to $22,000
The rule of 1/5 x 5 applied
Initial offer: Pre-recorded course
Price: $200
Number of customers/enrollments: 100
Revenue: $20,000
Upgrade 1: Live online course
Price: $200 x 5 = $1000
Number of customers willing to upgrade: 100/5 = 20
Sales: $20,000
Upgrade 2: Private workshop
Price: $1000 x 5 = $5,000
Number of customers willing to upgrade: 20/5 = 4
Sales: $20,000
Potentially increase sales from $20,000 to $60,000.
CHALLENGE TO YOU
Most businesses only have the initial sale in mind, but if the “rule of 1/5” and/or the “rule of 1/5 x 5” are developed to offer increased value and implemented well, it could increase the lifetime value by up to 300%.
Considering your best-selling offerings according to the Pareto principle/ 80/20 rule, brainstorm what you could add to charge 20% more for a one-time upsell – the rule of 1/5.
In your context, do you have an offering for which you could enhance the value proposition significantly to make it easier or more likely for your customer/client to solve the problem they have that prompted the initial purchase? For example, maybe you offer a DIY solution to the problem, but could you also offer a done-with-you and/or a done-for-you solution at a x 5 price point – the rule of 1/5 x 5?
QUOTE
“Growth and comfort do not coexist.” -Ginni Rometty
Let’s BRAND FOR SUCCESS!
Pieter Steenkamp
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Meet Dr Pieter Steenkamp
I am a brand strategist and academic and hold a PhD in brand management. As a brand management lecturer and researcher at a university in Cape Town, South Africa and a regular visiting professor at universities in Germany, I stay updated with the latest brand management developments. This affords me the incredible opportunity to consult with leaders of some of the most admired brands.
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