In this post, you’ll learn how to use value ladders in your business to expand your market offerings.
Let’s start with some context: today’s business environment is more competitive than ever, in no small part due to skyrocketing costs.
As I write this, inflation is at a 40-year high, and it certainly doesn’t look like it’s easing up anytime soon. To make matters worse (per ProfitWell), customer acquisition costs for businesses increased by approximately 60% between 2014 and 2019.
In recent conversations with business owners, I’m continuing to hear a common theme: “I need to grow my business…I just need to get more customers.”
But here’s the rub – the single most difficult and expensive thing to do in any business is to acquire a new customer. Depending on what industry you’re in, it costs anywhere from 5 to 25 times more to acquire a new customer than to retain an existing one (HBR).
And existing customers are a heck of a lot easier to sell to: You’re 53% more likely to sell to an existing customer than a new prospect (Forbes).
As you look to adapt in 2023 and beyond, does it make sense to think differently?
Whether you own an online business or have a brick and mortar location, we’re going to re-examine your market offerings and value ladders. My goal is to give you actionable information you can use this week to leverage your existing customer base, improve your bottom line and customer retention. I see a tremendous number of small business owners leaving big time money on the table, and I don’t want you to be one of them.
We’re going to use what you have right now…without spending a single extra penny on advertising. If you implement these techniques, you have the potential to literally double your revenue through value ladders.
Sound good? Let’s dive in.
Value Ladders and the 80/20 Principle
A lot of business owners assume their customers are roughly equal and have about the same willingness to buy. But in reality, that couldn’t be further from the truth – customers are NOT created equal.
The 80/20 rule is a major factor here, which is a universal truth around the imbalance between inputs and outputs. The basic idea is 80% of the results come from 20% of the effort (or inputs). On the surface it appears to be a simple concept, but it’s a profoundly useful tool for businesses to focus their efforts and resources. 80/20 is a business model framework that applies to almost anything we can measure in business.
The Law of 80/20 says that:
- 20% of the customers produce 80%+ of the profits
- 5% of the customers produce 50%+ of profits
- 20% of the people will spend 4 times the money, and 4% of the people will spend 16x the money of the average person.
The real power of 80/20 is when we realize that 80/20 is fractal, containing patterns within patterns. Each 80/20 has an 80/20 relationship within it and everything in your business is a source of potential leverage.
What does this mean? You likely have 0.8% of your customer base worth 52% of your profits.
The percentages might not be exact but this law applies to virtually every industry, product, and service. By strategically targeting your top customers, you can radically transform your results, customer lifetime value, and create a sustainable competitive advantage.
Perry Marshall (author of 80/20 Sales and Marketing) talks about this idea in terms of an analogy, calling it the “expresso machine” principle.
He uses an example we’re all familiar with: Starbucks coffee. Starbucks has the following market offerings:
- Grande Coffee for $2.10
- Mid-Level Expresso Machine for $275
- High-End Expresso Machine for $2,700 – over 100X more expensive than regular coffee
Most folks don’t realize Starbucks even sells that high-end expresso machine. Believe it or not, there are actually a decent number of people willing to buy that high end machine.
There are always going to be a significant portion of customers willing to spend more…and I’m willing to guarantee this is the situation in your business too.
If you start looking for it, you’ll see this 80/20 dynamic in play in all sorts of different industries:
- Disney – you can purchase a 1 day pass for $100, VIP 1 day pass for $4K, all the way up to homes on the Disney property to capture the magic for $3M+
- Las Vegas casinos – 20% of their income is from wealthy gamblers referred to as “whales.” These are the guys that fly in on private jets and bet $100K on a round of cards…
- Medical industry – care from a normal doctor is ~$400 per year but it dramatically spikes to >$3,000 for a concierge doctor
- Hotels – normal rooms might only cost $150 while penthouse suites cost $10,000+
- Mobile gaming industry – in 2016, 48.4% of all revenue came from just 0.19% of players
Value Ladder Example: Tony Robbins
To continue to make this real, let’s look at a well designed value ladder (also known as an ascension model) through how Tony Robbins has constructed his business. As you can see in the ascension pyramid below, as you go higher up, the price point goes up dramatically. The pyramid and customer journey contains everything from free content to 1:1 work with Tony that costs $1M+.
Said differently: the closer you get to Tony, the more you have to pay.
At the bottom of the pyramid, if he did nothing but sell books, Tony would be leaving a tremendous amount of money on the table (plus his average customer value would be miniscule). While he’ll capture a large segment of the market at the low cost level, there are always an elite few that will climb all the way to the top of the ascension model during their customer journey.
These people are willing to pay top dollar for personal attention and the likelihood for a greater result.
Why Create Value Ladders?
Here’s the punchline: if you’re not selling premium high ticket offers with value ladders (also known as ascension models) you are leaving a ton of money on the table.
I can tell you this unequivocally – there is a portion of your customer base that want more from you (this is true in every business). According to world-class marketer Dan Kennedy, 5 – 20% of your customers are not fully satisfied. These top customers will spend more money with you if given the chance.
And as we covered above, the majority of your profits will come from a small portion of your top customers.
Even if 95% of your customers do not have a willingness to spend a lot of money (similar to Tony’s books), that 5% could be worth 50% for the bottom line of your business.
Therefore, it’s critical that you identify and focus your efforts on your most valuable customers.
Create a Value Ladder for Your Top Customers
A high-ticket item is a product or service that carries a high price tag. Usually, these items are priced at $1,000 or more. Some business owners shy away from offering high-ticket items because they think their customers won’t be able to afford it or they’re worried about not having enough interest to justify offering it.
Beyond the benefits we covered above, high ticket items are a great way to expand your market offerings and increase your lifetime customer value. From a profit standpoint, the premium versions also tend to have far higher profit margins than your core/base offering.
Keep in mind your high ticket offer should be a natural extension of your basic offer, but should have greater value and be sold at a significantly higher price.
Crafting a high ticket offer doesn’t have to be complicated. In fact, it can be quite simple. Here are a few tips to get you started:
1. Start by evaluating your basic offer. What are the key components that make it valuable? What could you add or change to create an even more valuable offer?
2. Think about what your ideal potential customers would be willing to pay for your product or service. How much value do they see in it? Think about ways it can have a significantly higher perceived value than your basic offer.
Here’s what I’d ask you to think about:
- How can you dramatically improve your customer’s experience?
- What would you have to do to add great value?
- Can you add tiers to your products or services? Can you create a premium option?
- How many price levels do you serve?
Elements to Consider For Your High Ticket Offer
1. Hands-on help
This could be through individual or small group coaching (training and personal help to reach an end result)
2. Increased personal touch and priority access to you
3. Done-for-you services
Make it easier for them – they might pay for learn how to do something but will pay more for you to do it for them!
4. Simplicity, convenience, and ease of use
Think about Apple and Amazon’s obsession with simplicity and client experience. How can you bring this to customers?
5. Workshops or clinics
In-person events to get closer to you and solve a problem
This can include any variety of “plug and play” ads, tools, or other templates.
7. Extended warranty, lifetime replacement, free repairs
8. Lifetime membership
Unlimited use, replacements etc.
Part of a special club or membership
10. Package deal
Bundling of products/services for greater value. You could consider packaging multiple products together at a discount price (i.e. 4 products for 35% off)
People will always pay for to get something done faster (i.e. overnight FedEx shipping)
12. Higher quality materials
Make it customized to the individual instead of ‘one-size fits all’
Here’s what this looks like visually:
As you consider product expansion, direct contact and personal support should be your highest price level. As you work up the scale, few people will purchase but it’s for a dramatically higher price. This is all about premium and personal service for a select few number of clients.
Many business owners are trying to make a living only in the first one or two low cost price levels…and they’re frustrated because it’s tough to earn a profit on that alone.
The principle here is incredibly powerful. If you sell one product for $50, there is a subset of your customers that has the propensity to spend a LOT more than that if you scratch the right itch.
So you could add a $500 product and a $5,000 product that could likely double your overall sales.
The question to be thinking about is:
If I had to sell my product for $5,000, how would I do it? What would I have to do to ramp up the value for my customers?
Most businesses don’t have market offerings spanning a this wide of a range, so they are missing all kinds of opportunities to sell to their existing customers.
I’d encourage you to pause and take a few minutes to brainstorm and map out some ideas for your highest priced product or service. This is tremendously high value work and worth carving out time for.
High Ticket Sales for Your Top Customers
As you continue your brainstorming, the natural next question is: How do I find out what they want to buy?
The first step is to identify the top 20% (or even top 5%) of your customers and design products specifically for them.
You might intuitively know who these folks are already, but if you don’t, you can do a quick list segmentation exercise to figure this out (sort and segment your customers by who has spent the most money with you over the last year).
Once you come up with the list of these individuals, I’d recommend you call them and ask a few questions. You can phrase this as just asking for their advice.
Here are a few thought-starter questions you can use:
- “What would you definitely buy from us if we were only smart enough to offer it to you?”
- How should we package our product / services?”
- “Is there anything else we should be offering you that you’d want to go with ____________.”
The key here is that we validate what we create through asking them. As you or your sales team continues to have these conversations, you’ll likely hear some similar themes from your top customers.
You’ll want to start to get clear on defining what this looks like:
- What is the high ticket offer you could start selling?
- What are the features and benefits of this product or service?
- How is your offer different from other offers on the market?
Once you’ve answered these questions, you’ll be able to craft a compelling offer that will resonate with your target audience. Remember, this is not intended for everyone, just that subset of top customers.
Whatever it is, you need to be able to clearly articulate the value proposition of your offering to your target market. This will help you attract and retain the most valuable customers who are willing to pay more for what you have to offer.
What’s Next? Create a Value Ladder
As we close, your goal is to implement just one of the ideas we talked about in your business next week. I hope I’ve inspired you to give this a try.
The faster you put it into the action, the more likely you’ll see results. Don’t let perfection get in the way of progress – this is all about implementation.
So, what can you do to start implementing these techniques and expanding your market offerings? First, take a look at the products or services you offer. Do they span a wide range of price points? If not, you’re missing out on potential sales from your existing customer base.
Second, consider how you can position your high ticket items in a way that makes them attractive to your current customers. Like I said, the majority of businesses don’t have product offerings spanning this wide of a range, so their missing all kinds of opportunities to sell to their existing customers.
If you’re looking for a way to dramatically increase lifetime customer value and accelerate your business growth, selling high ticket offers with a value ladder model is the way to go.
What resonated with you the most? Let me know in the comments below.
P.S. If you are interested in going deeper down the rabbit hole of 80/20, I’d recommend taking some time to watch this video.
Although its lengthy (1 hour 40 min), it’s a masterclass in how to apply 80/20 within your business.