Growing your business is hard. I’d argue that the success of just about any business comes down to sales and distribution of your product/service (how do you get it in front of thousands and thousands of people).
But, with that said, there are some easier tweaks you can make to your business model that could drastically impact your revenue.
I’m not a huge fan of calling these “hacks”, because I think anything worth doing or accomplishing doesn’t have shortcuts. And it’s the same with business.
BUT, testing different iterations of your pricing, business model, landing pages, email scripts, etc. can make a big difference, and they’re easy to test.
For starters, you can read for yourself how we split A/B tested different parts of Vendevor and increased the effectiveness of our website and lowered our cost of acquiring a customer. It’s real stuff.
I’ve given a few talks on how to optimize your website and run effective online marketing (paid or organic) campaigns.
Here’s the slide deck with tons of resources and tips.
So, what I want to focus on today is a particular test that I know will increase your revenue per customer, per transaction, and just revenue overall. I’ve been wrong about a lot of things before, but I know I’m not wrong about this one.
Test your pricing
Let’s be honest, a lot of times when we pick a price for our product or service, it is about as simple as that… we pick a number.
It could be based off competitors, it could be based on our own costs of providing that product or service, but at the end of the day, we more or less just picked something.
Just like it is critical to split test different versions of your website, emails, and advertisements, it is critically important that you test your pricing.
I’ll give you a real example from Vendevor.
Split testing the pricing of a subscription service is tough. If you all of a sudden raise or lower prices for your existing customers or new customers, someone will be pissed off. Someone is going to inevitably be paying more than someone else. There’s really not a situation where you can avoid that (unless you drop the price for everyone… but that only works until you decide to raise prices later).
I want to introduce a tactic of testing your pricing model without having to actually change your prices to your current or future customers. Sounds crazy, but it’s super easy.
Here’s what we did.
We had three different pricing plans at Vendevor. $9, $29, and $79. We noticed that people were still in fact signing up for the $79 plan, which for us meant that we weren’t technically charging enough.
If people were willing to pay our maximum amount, then basic economics says that someone in that group would very likely be willing to pay a little (or a lot) more. We’ll leave the deep economics out of it, but our CTO is nearly a professional economist (weird, I know), and he kept bugging us about it until we finally listened.
So, instead of jacking with the pricing, we simply added another pricing plan. A more expensive plan.
Notice that we didn’t actually change our pricing. We just added to it.
Adding more expensive pricing tiers simply adds perspective to the other prices. The idea here is that $79 might seem like a lot if it’s compared to $29, but it doesn’t seem like nearly as much when compared to $139.
So, what happened? Interesting things.
Without changing anything about our business (other than adding a new pricing tier), Pro Plan ($29/month) selections increased by 18%.
That’s a real increase in our average revenue per user, without doing anything differently in our sales process.
Okay, so you’re not selling a software subscription. But I guarantee you that this principle still applies to your business today.
This one split test is evidence that as consumers (and I am one of them), we really don’t know what price we prefer. We might think we do, but in reality it only comes down to comparative pricing.
When you are making a buying decision, you are comparing the $20 in your wallet to the nice bottle of wine you could enjoy with your wife. You’re comparing value. If the bottle of wine and time with your wife is more valuable than the $20 bill in your pocket, the bottle of wine wins.
It’s the same exact thing with pricing. It’s all about comparison.
Here’s another great example of how and why this is true. I promise it’s worth the 2 minutes it will take to watch.
So, the power of comparison is compelling when it comes to pricing.
How can you apply this to your business today?
Here are a few options:
1. Add a higher pricing tier
Just like we did at Vendevor, experiment with adding another premium option that is more expensive that your other options. If you are selling jewelry, mark up your a hand-crafted piece considerably more than the other piece sitting next to it.
If you’re selling a service, mark up a pricing option that contains more of your personal time into it. Increase the perceived value by increasing the price, and see if your customers are more willing to jump on your other options that are the next price step down (but still higher than your lowest priced items). For us, it increase our revenue per user.
2. Bundle products together at a slightly higher price point than the same products packaged individually
This one is simple. If you are selling different products like barbecue sauce and t-shirts of your brand, bundle them together and see how many people purchase the combo. Make it slightly less expensive than if they were going to purchase them separately.
For instance, bottle of barbecue sauce = $5. T-shirt = $10. Make the combo $12.
Remember that this tactic (like in the video) will likely change the consumer from being a “bargain hunter” to a “value seeker.”
Another great example of this is car washes. Those stupid things get me every time.
I’m willing to pay $6 for the basic wash, but for $7 I could get my wheels shined, and if I’m at $7, I might as well pay $8 for the rainbow stuff that really makes my chevy shine.
And bam, they got me to pay $8 when I was only planning on paying $6 at first. I know they’re sucking me into it, and somehow I’m totally okay with it.
3. Never underestimate the power of 9
An MIT Study ran a test with women’s clothing and found that items priced at $39 sold better than the same items priced at $34.
That’s crazy if you think about it. A small tweak in pricing can increase your average sale per customer.
If your product is normally $10, definitely try it out at $9.99. In the example where we bundled the barbecue sauce and a t-shirt, price the combo at $11.99 instead of $12. Experiment with 9. It’s not messing around.
So, again, I’m not a fan of people touting “hacks” to grow their business.. but this is about the closest thing I can think of. Small tweaks in your pricing – based on proven pricing psychology – can make a big difference in your average revenue per sale, and thus your overall revenue.