How to Find the Price People Will Actually Pay — Transcript

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1. 0:00Wealth is so concentrated on the I did
2. 0:02my favorite video of the year. I I did
3. 0:04this breakdown.
4. 0:05And because it was my favorite video, I
5. 0:06think it got like 300,000 views. But
6. 0:08like
7. 0:09>> [laughter]
8. 0:10>> But what I did was really interesting is
9. 0:11that I took wealth in the United States
10. 0:13and I had a I had it represent $100.
11. 0:15100% of wealth is $100. If you looked at
12. 0:17it, right? And you had a circle for all,
13. 0:21you know, 100 people at different
14. 0:22percentiles, right?
15. 0:24There's like $2 in the bottom 50th
16. 0:27percentile.
17. 0:28The bottom 50% of people has roughly
18. 0:30>> $2 of the 100 of the 100 in wealth.
19. 0:32>> Wow.
20. 0:32>> It's crazy. And then you've got your
21. 0:33next 40.
22. 0:35And I think that was like
23. 0:40Then you have your next 9%, which has
24. 0:42like $36.
25. 0:44And then the top 1% has 31.
26. 0:48Hopefully the math maths, but it's
27. 0:49somewhere somewhere in the neighborhood.
28. 0:51And so when you look at that division,
29. 0:53and then you're like, "Who should I
30. 0:54serve?"
31. 0:56Many people who are starting out are
32. 0:58here.
33. 1:00And the only people they see
34. 1:02are here.
35. 1:03And so their view of the world is not
36. 1:06accurate.
37. 1:07And this is why they stay broke.
38. 1:09Because they try to sell to other people
39. 1:11who have no money and then assume that
40. 1:13no one has money.
41. 1:16>> The interesting thing I noticed and I
42. 1:18think anybody that's run a service
43. 1:19business will be able to relate.
44. 1:21>> Yeah.
45. 1:21>> Is when I started out, I was selling to
46. 1:24start-up founders who had an app idea
47. 1:26>> Yeah.
48. 1:27>> whose marketing budget was approximately
49. 1:28$10,000. And I was asking for $10,000.
50. 1:31[laughter]
51. 1:33>> And they were watching me. They were
52. 1:35counting every download they got on
53. 1:36their apps. And slowly we managed to
54. 1:38move up. And the remarkable thing is,
55. 1:40this is a crazy thing to say, but it was
56. 1:42easier from a client management or a
57. 1:44client account management perspective to
58. 1:46deal with Coca-Cola than it was Dave
59. 1:49with his dating app idea.
60. 1:50Coca-Cola, who would give you
61. 1:52potentially six figures in budgets, um,
62. 1:54would would be a little bit more casual
63. 1:56than Dave with his dating app idea where
64. 1:59he'd put his mortgage on the line.
65. 2:01>> [laughter]
66. 2:01>> But it's not it's not easy to move up
67. 2:03because to get that meeting with
68. 2:04Coca-Cola, to be able to earn it to
69. 2:06them, you got to earn it somehow.
70. 2:08So, it's all well and good saying it,
71. 2:09but the reality of getting up there is
72. 2:11they they think more about credibility,
73. 2:13track record. They'll they'll work with
74. 2:15people who are highly credible and who
75. 2:16who they can see a reality behind.
76. 2:19>> And so, it's not there's nothing wrong
77. 2:21with starting to sell to friends and
78. 2:22family, but the the goal again, that's
79. 2:24if your goal is to make more money with
80. 2:25the business
81. 2:27should be to move up market. And if you
82. 2:29look So, this is kind of interesting,
83. 2:30something I've noticed.
84. 2:33If you look at the price of a service,
85. 2:35and this is specifically for service
86. 2:36businesses,
87. 2:38the price of the service almost has a
88. 2:40one-on-one correlation with how advanced
89. 2:42the business and business owner are.
90. 2:45Just as a forcing function because
91. 2:48in order to go up in price, like a
92. 2:51service business done well means you did
93. 2:53a good job, you have more demand than
94. 2:54you have supply. And so, what do you do
95. 2:56when supply and demand crisscross? You
96. 2:58go up in price. And so, you continue
97. 3:00this loop and as long as you continue to
98. 3:01deliver more value than you're charging
99. 3:04for, you continue to have more demand,
100. 3:05and you just keep laddering up. And this
101. 3:07is why price is such a strong signal for
102. 3:09value, which why when you're starting
103. 3:10out it's hard to hear us say, "Hey, add
104. 3:12a zero to your price tag. Add two zeros
105. 3:14to your price tag." Because if someone
106. 3:15comes to me and says, "Hey, I want to do
107. 3:17all of your social media management for
108. 3:19$2,000 a month." I'm like, "Dude, you
109. 3:20can't even handle me."
110. 3:22Like you could like even if I said yes,
111. 3:23you can't. The math doesn't math.
112. 3:26There's no way you can do it. And so, if
113. 3:28someone comes to me like the minimum I'm
114. 3:29probably going to be willing to spend
115. 3:30is, I don't know, 15,000 a month for a
116. 3:32vendor? Like the minimum I could really
117. 3:33possibly and it'd be probably a smaller
118. 3:35shop, and I know the founder's probably
119. 3:37still integrally involved and I'm fine
120. 3:38with that. I'm okay with some founders
121. 3:40like being good and basically me seeing
122. 3:41them as a fractional employee that I'm
123. 3:42paying less and that works fine. All
124. 3:43that to say like
125. 3:45you want to have your price go up. One
126. 3:47cuz you serve better customers, two cuz
127. 3:48you'll have better margins, three
128. 3:49because there'll be less fighting, and
129. 3:50four because the signal of how good you
130. 3:52are what you do.
131. 3:53>> Mhm.
132. 3:53>> And the best businesses and business
133. 3:55owners will know, "Oh, this is for me."
134. 3:57You signal to them that you like you
135. 4:00want to go up market but you have low
136. 4:01market prices. There's There's something
137. 4:02called a Van Westendorp pricing
138. 4:03analysis. You might have heard of it.
139. 4:04It's from the 1970s. I do this most
140. 4:06times when I launch a new offering. And
141. 4:08so there's four questions you ask.
142. 4:09Number one, at what price would this be
143. 4:10so expensive that you wouldn't even
144. 4:12consider it?
145. 4:12>> Mhm.
146. 4:13>> Number two, at what price would this be
147. 4:15so cheap that it would be impossible
148. 4:17that it would be able to be valuable. It
149. 4:19It'd be too cheap.
150. 4:20At what price would it be right at the
151. 4:21edge you'd have to really consider it
152. 4:22but you'd end up buying it. And then at
153. 4:24what price would it be a bargain, a good
154. 4:26deal?
155. 4:27And so when you actually take a scatter
156. 4:29plot to this and now I have to I used to
157. 4:30have to do these manually. Now you can
158. 4:32literally just take the data and put it
159. 4:33right into the AI and say, "Hey, run a
160. 4:34Van Westendorp analysis on this." which
161. 4:35is amazing. So you can get it in 6
162. 4:37minutes.
163. 4:38Um and so you get these there's four
164. 4:39points on the graph.
165. 4:43If you have the scattered dots. And so
166. 4:44you have the point of marginal cheapness
167. 4:47which is basically beyond this point the
168. 4:49majority more people will think it's too
169. 4:51cheap to be believable.
170. 4:52>> Okay.
171. 4:53>> And above this price it's too expensive
172. 4:55to be considerable.
173. 4:57And so what you can find is you can do
174. 5:00area under the curve to see at what
175. 5:01price would I make the most money if I
176. 5:03had a higher friction sales process.
177. 5:05>> Mhm.
178. 5:05>> [clears throat]
179. 5:06>> And if I wanted people to simply
180. 5:07purchase it so if I wanted to have an
181. 5:08automated sales process where my range
182. 5:10is. And so there's a range in there
183. 5:12where it says, "Okay, right here is the
184. 5:14point where you'll make the most number
185. 5:15of sales." Now you have to factor in
186. 5:16margin like gross margins of the product
187. 5:18but you can guess like this is how when
188. 5:20you want to launch a shampoo
189. 5:23this is how they do it.
190. 5:24And so we can price it precisely.
191. 5:27>> Is it a bell curve or is it Oh yeah. So
192. 5:30is it like a Yeah.
193. 5:31>> But sometimes it's so interestingly
194. 5:34sometimes you have double Gaussians
195. 5:35that'll happen.
196. 5:36>> Mhm cuz it's different customers.
197. 5:37>> Yeah.
198. 5:38So when So when I run these I ask those
199. 5:40four questions but I also ask for the
200. 5:42customer stats.
201. 5:43So then I can slice it by saying, "What
202. 5:45do you the with customers think? What's
203. 5:47the pricing curve for them? What's the
204. 5:48pricing curve for poor customers? What's
205. 5:50the pricing curve for home services?
206. 5:51What's the pricing curve for And so then
207. 5:52you can get really, really accurate with
208. 5:54initial pricing.