This is a guest post from Russ Ruffino, founder of Clients on Demand. To sign up for the latest webinar on how to implement the problem-first approach in your business, view his free webinar.
When you have a solution that is streamlined to solve a painful problem for the right customer, that customer will gladly pay a lot more.
You just need to tweak these three things correctly:
* Update your service's value proposition.
* Streamline your service to deliver that value.
* Target the most profitable customers.
It took me two years of trial and error to learn exactly what works. When things clicked, my revenue shot up from $120,000 per year to $2.4 million per year.
To help you get the same results in a fraction of that time, and with a lot less pain, I condensed my learnings into a six step approach that I call the problem-based pricing approach. In each step, I share my story so you can learn what did and didn't work for me.
Step 1: List all of the specific problems your service solves.
As I explained in previous articles, how you define a problem determines how you solve it. If you misunderstand the real problem you're solving for your customers, then everything you do to solve it will be flawed. If you nail the exact problem, then your solution will be better and you'll be able to achieve it faster.
Albert Einstein powerfully summarized the importance of defining your problem: "If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it."
If you're already in business, then you probably know what problems you generally solve. Now is your chance to get more specific:
If you're not in business yet, then:
Knowing someone's specific problem helps you create the most simple, effective solution.
When I first started, I reverse engineered how the most successful online teachers actually made their money. They all started with courses on random topics, from carpet cleaning to dating to investing, but they all transitioned to and made most of their money from teaching others how to make money online.
That showed me that there was a large demand for this topic, and people were willing to pay money if I could help them.
I knew how to create video courses (I had previously started a video course business and sold it). And I knew how to make money online. So I decided to follow a similar path as other online teachers.
I created a $249 video course for people with little online experience who wanted to start making money online.
Unfortunately, I had not yet learned about the importance of finding profitable problems and targeting profitable customers, so I later had to refine my model. See more on that below.
Step 2: Identify which of the problems are most painful.
As a rule of thumb, the more painful the problem, the more value you'll provide if you solve that problem. The more value your service brings, the more you can charge.
So the next key is to identify the most painful problems you could solve.
To do this, rate all of the problems you listed in Step 1 on the scale below:
You want to focus on the level 5 problems. People with level 5 problems want a solution right away and will do whatever it takes to get it!
There is a reason Google is one of the most profitable businesses in the history of civilization. It helps advertisers reach Level 4 and 5 customers via keywords they use that signal "purchase intent."
Step 3: Figure out which ones you can solve 100 percent.
If you pick a problem off of your list that you cannot solve 100 percent, you will not be operating with integrity, you will do your customers a disservice, and you'll likely end up with disappointed customers who will damage your reputation.
It's critical to really understand what it takes to solve the problem.
When I first started, I thought I knew what it took to solve my client's biggest problem: information! So I made a course (as mentioned in Step 1).
To my complete shock, almost none of the hundreds of people who purchased the course took action. And of those that did, few had real success.
That's when I learned the difference between information and transformation.
If information was enough to solve everyone's problems, then everyone would be leading a healthy, happy, and prosperous life.
To find out what would affect real change, I started experimenting with group coaching.
My first attempt was sending a promotional email to my 2,000 newsletter subscribers and offering them a $2,000 eight-week group coaching program.
A hundred people joined the webinar and 15 of them ended up buying.
Here was the amazing thing:
Every customer showed up and took action, and because there were fewer people paying more, I was able to invest more resources in providing them with accountability, coaching, and other forms of support. We had some amazing success stories. Even the people who didn't hit it out of the park were happy with what they learned from taking action in the program.
People need transformational services, and they are willing to pay much more for transformation than they would for information.
Step 4: Figure out which problems you can solve most profitably.
The key to finding the most profitable problems to solve is to understand which solutions provide the most value to the customer for the least cost on your end.
In order to understand the value of your service, ask yourself these questions:
Asking these questions is critical on two levels:
Once you understand the value of your solution, you should estimate the cost (including your time) to deliver on that solution.
Comparing the value and costs of different solutions will help you narrow in on the most profitable ones.
Caution: There are some markets (like most forms of retail) where the solution to a painful problem has become a commodity and can no longer attract higher prices. Avoid these markets if you're looking to apply the 10x model.
If I could go back in time, I would have paid special attention to this step. The video course model I chose was not the most profitable one.
I partnered with affiliates who promoted the opportunity to their list. Then we split the revenue 50/50. As I mentioned earlier, in my first year, the business brought in over $250,000 in revenue. But when all was said and done, I only brought back $90,000.
Not too bad for a salary. But it wasn't profitable enough to hire a team around and buy traffic with.
The group coaching program that I've had for the last two years has been much more profitable. I charge $5,000 to $25,000, depending on the type of program. And as I said earlier, this year I will earn over $1.5 million in profit.
Next year, I'm going to offer a $60,000 program that provides even more value.
Step 5: Narrow down to one core solution and one core problem.
Many entrepreneurs mistakenly follow the "more is better" approach.
This is the belief that the more problems your service solves, the more customers will want that product. In reality, this is a recipe for disaster.
Stop doing stuff that doesn't add value or that creates more clutter than value.
When I first started my company, I worked with anyone who wanted to make money online, and I taught them several different approaches.
Over time, I realized that we could add more value by just teaching the most effective way I knew of and focusing on doing a really, really good job on just that one.
Your customers don't need lots of features. They need one kick-ass solution.
Counterintuitively, a product that solves one painful problem really well is much better than one that solves lots of problems so-so.
Step 6: Find the customer with that problem who can afford your solution.
At the lowest price, you'll attract DIY (do-it-yourself) customers and dreamers who want to save money and do everything themselves. They often are not ready to buy or don't have much of a budget.
As you raise the price, you start attracting customers who prefer to pay for a solution. They will happily spend extra money in order to have someone else solve their problem faster and better than they could on their own.
My first course attracted the wrong type of people, and I didn't yet understand the power of picking your customer at the time. About 10 percent to 15 percent of the customers were desperate or needy. Almost no one was ready to take action.
These were people basically hoping for a miracle; something that would rescue them from their job at Walmart. I'd get calls like, "Hey Russ! I'm running low on rent this month. I like your program, but I'm going to have to ask for a refund," or "I got in a fender bender, and I need a refund."
When I started increasing my price, the customers I attracted changed overnight.
They valued the information more, took more action, were happier with the program, and didn't ask for refunds.
Each time I increased the price, this became even more true.
Today, I'm very intentional about whom I target. I don't even allow people without a track record to join my program. My sweet spot is clients who already have traction and want to multiply their profit.
Step 7: Build your sales funnel around the problem and the customer.
Once you've streamlined your offer at the exact price you want and identified your new target customer, it's time to update your sales funnel. I share my exact sales funnel in this article.
When you present the price to potential customers, they should think that the price is worth it! If you're getting push back on the price because they don't think it's worth it, then you know you have a problem with the marketing.
The issue is that your potential customers aren't making a strong enough connection between their BIG problem and you (or your product or service) being the solution that makes their problem go away.
At the end of the day, the decision they're really making isn't whether or not to buy the product. It's whether or not they want to solve the problem, and whether they believe you can accomplish that. If the problem is truly painful, then it should be worth the price.
A Simple Way to Get Started
When I switched from video courses to group coaching, I made a stupid mistake. I stopped selling my video course completely and went 100 percent into group coaching. Scaling the model ended up being harder than I expected, and I nearly went under, because I spent $61,423-plus trying to make the new model work while only bringing in $30,236.
Don't make the same mistake I did.
When you make significant changes to your price, service, and marketing, don't assume everything will work perfectly. It often takes weeks or months of tweaking to get everything running smoothly.
Don't kill your bread and butter.
Here's what I recommend:
Not everyone will come with you. Expect that.
But you should have enough money from new customers that you feel comfortable losing old customers who don't go along with the price increase.
Life is too short to work seven days a week building a business that only partially solves a customer's problem. Follow the steps in this article to build a massively profitable business that transforms people's lives:
The 15 Coolest Products of 2015
1. List all of the problems your service solves.
2. Identify which of the problems are most painful.
3. Figure out which ones you can 100 percent solve.
4. Figure out which ones are most profitable to solve.
5. Narrow down to one solution and one problem.
6. Find the customer with that problem who can afford your solution.
7. Build your sales funnel around the problem and the customer.