Most people don’t realize this, but your offer (and specifically, your price point), is what I would argue to be the most important factor in determining your marketing strategies, your distribution channels, and even your business model.
This concept, which I’m borrowing from Brian Balfour (former VP Growth at Hubspot, now runs Reforge) and renaming to make my own, is what I call Offer / Channel fit…and most people are completely unaware of it.
Here’s the 30 second breakdown. Your Offer is made up of two parts
- Your product — the thing(s) you’re selling — and
- The investment required to purchase the product (total price, financing options, time & effort on the part of the buyer, etc)
Your Channel is the medium through which you sell and distribute your Offer.
Assuming your Offer is actually wanted by people (#1 reason products fail), the #2 reason most products and businesses fail is because they fail to achieve Offer / Channel fit.
Optimizing for Offer / Channel fit is part psychology, part math equation.
The psychological part of the equation is simple: Is the target audience for my offer found on this channel?
If the answer is no, choose a different channel. If the answer is yes – you can proceed to part two.
The math part of the Offer / Channel optimization equation is where things start to get a little more tricky.
That’s when you have to ask yourself Based on the economics of the sales funnel from this channel, is it profitable for me to sell this offer at scale?
And that’s where businesses that don’t understand this concept run into trouble.
If you have a low priced offer (let’s say $10 / month), then there are things about your offer and entire business model that MUST be true to be profitable at any sort of scale:
- Primarily FIXED expenses, and little to no variable expenses
- An offer that appeals and could reasonably be purchased by a mass market (in the hundreds of thousands to millions)
- A completely self-serve sales model
- Advertising strategies that achieve SCALE (think Super Bowl ads instead of precise, direct response targeting)
- Ideally, a product that doesn’t require direct-response marketing at all.
Why must these things be true?
Simple – at $10 / month, you’re making very little profit on any individual customer.
You can’t afford to spend 1-on-1 time or attention on a customer who is only paying you $10 per month.
To hit $10mm per year, you need nearly 100,000 customers per month, which means you need a product with broad appeal.
You DEFINITELY can’t afford to spend 1-on-1 time trying to sell people on your product, so the customer needs to be able to educate and purchase it themselves.
And to achieve any sort of reasonable payback, you can’t afford standard direct-response marketing funnels (typically too expensive on a per customer basis). You need large numbers of impressions for cheap, or marketing that is a fixed expense, vs variable (content marketing, viral videos, etc).
In a callback to Tai Lopez testing a $9.99/month membership product for his SMMA course (from last week’s article), he’s doing this because his target market for that course isn’t just wannabe digital marketers (a relatively small market) – his market is virtually every 16 – 24 year old male that wants to drive around in Lamborghinis and take selfies with models.
It’s a product with broad appeal.
Also, with the scale of content Tai puts out and his reach, it allows him to use his fixed costs (organic content creation) to promote his $9.99 offer.
Lastly, I haven’t purchased his $9.99/month membership funnel, but I would also imagine that there are AGGRESSIVE upsells on the backend so that by the time it’s all said and done, the average customer acquired is worth $500 – $1k to him within a year.
Coming back to the concept of Offer / Channel fit – it is for THESE reasons that the almighty Webinar Funnel is NOT the silver bullet to every sales problem (or even most sales problems).
There’s a reason you’re never going to see a webinar selling a pair of shoes. The math just doesn’t work out. The funnel is too long and too leaky. For the math to work on a webinar funnel, the offer at the end needs to be high ticket, and targeted at an audience with enough time on their hands to sit through a 1.5 – 3 hour sales pitch.
Which is why you see biz app / make money offers at the $900 – $2k price range on virtually EVERY webinar funnel on the internet. Depending on the offer, willingness, and ability of the market to pay – $900 – $2k is a mostly optimized price point for that channel.
And when that same webinar funnel moves to phone sales, you tend to see the offer price jump up to $5k – $15k+. The additional step means it becomes more expensive to acquire a customer, which requires a more expensive offer to justify the increased cost to acquire that customer.
The next time you take a look at a business that’s interesting to you, don’t ask yourself “I wonder how they came up with that business model?”
Instead, I recommend asking yourself “What is their Offer / Channel fit?”
In my opinion, understanding something as simple as Offer / Channel fit tells you more about that business (and the decision-making criteria and strategy of that business) than anything else.