Pricing Strategies: The Loss Leader (#04)

today we're going to talk about the power of the lost leader [Applause] hey what's going on guys it's Mike Gaston and this is number four in a multi-part series on pricing strategies we're going to talk about the lost leader today have you heard about a loss leader have you've done any shopping at a supermarket or a department store you know what a loss leader is it something that they offer to get you in the door it's usually something that they sell at their cost or maybe even at a bit of a loss but it's to get you to come in the door they advertise this thing you're like oh my gosh I can't believe they're selling milk for a dollar a gallon you fire up the grocery getter you blow into the parking lot cuz you got to get that milk and they know that once you're in the door you're gonna buy some other stuff and so once you go get the milk which is usually in the back of the store you kind of stop on your way and pick up bananas and get some bread and you know what I'm really hankering for some chocolate chip cookies next thing you know you've dropped about $100 you're back in the van on your way home and that's the loss leader it's just to get the customer in the door so that you can start to do real business with them and yeah they may have lost a buck or two on that gallon of milk but they made up for it and all those other items that you purchased while you were there and so for service based businesses the loss leader can be a very powerful tool so if you're the kind of professional that offers some type of service like graphic design or accounting or photography or digital marketing or any of those things you're looking for ways to get your customers in the door what I often see with these kinds of service based professionals is they'll give that initial work away for free and in there my next kind of loss leader it's like well I'm gonna do some of this work I'll throw a little bit of my thinking out there I want to show them how good I am I want to convince them that they should work with me so I'm going to give them some initial concepts for free or I'll sit down and do a consult but I'll give them some work product out of that consult and I'll do that hoping that they'll then hire well the problem with that approach is twofold first of all as I always say you only have so much time and your time is really what's available when you give that time away you can't get a pack you can't charge for it but that's kind of the minor issue in this instance the biggest issue is you are conditioning your clients and customers to devalue your work if you're willing to give away your thinking for free at the very beginning where are you going from there how are you going to get the customer to believe that you're worth a lot of money down the road I found often when we ran our agency if someone hired us initially to do business cards for them right hey we need some business cards design and reprint it or whatever okay so we update some phone numbers maybe change a title we do a run I know it's a $500 job let's say it's very hard for that client to think of us for 20 30 and $50,000 of work and their mind we're that little quick print shop that did quick and cheap business cards for them meanwhile we're an agency we do communication design and graphic design and packaging for fortune 500 companies but in their mind we're that little shot that gets stuff turned around quickly and that's what happens to you when you give your work away for free to try to get your foot in the door well this is where the loss leader comes in really great tactic in working with a new client is to say look I need to understand the lay of the land I want to do an audit so you're telling me that you're having problem increasing your sales you want me to come in and help you rebrand the company that sounds good and we've had some discussions but I think Before we jump into that I'd like to do an assessment it's not expensive it lets me get under the hood and really get the lay of the land and the things that I learn from this assessment will inform the branding project if we indeed go forward on that and essentially what you're doing is some kind of audit digital marketing companies do this all the time in digital marketing they look at your social media exposure they're looking at your Google pay-per-click ad they're looking at your organic search traffic they might be looking at some of your competitors and keywords that they're ranking for and they're going through your digital marketing and assessing where you are now and they do a gap analysis so where are you now where do you want to be down the road and what are the things that need to be addressed to get you there now often we'll charge somewhere from fifteen hundred to five thousand dollars for that audit they're not making money on that but they're getting their foot in the door they're doing some thinking they're demonstrating to you their expertise and at the same time they're making some of their money back what they're establishing the fact that their time is worth money their time is worth something and they don't give it away for free and they don't say well gee you know usually I charge by grand but for you I'll do it for free now maybe if they're working for a not-for-profit or they've got some pro bono project but that's not what we're talking about here they don't let their clients or paying clients get something for free now that isn't to be stingy but that's to help establish the nature and the value of the relationship that I'm gonna come and solve problems for you I bring a lot of expertise of a phenomenal team with me but there's some value in that and I'm gonna give it to you at a fair rate I know this is our first time working together I'm not gonna ask for a ton of money but I'm gonna ask for something enough that you know that it's a bit of a commitment and the second thing that that does so initially that helps offset the cost and it establishes the value of your work that's the first thing but the second thing that that does is it kind of breaks through that initial reluctancy to engage a large project so when you're brought in to do a branding project that could be a 10 15 20 thousand dollar job the clients really nervous about making this college never worked with you before you seemed really good doing that kind of loss leader project allows you to kind of give them exposure to you how you work how you think to make them feel more comfortable about hiring you for larger work down the road now I don't do this all the time with my consulting clients it's something that we used to do with our agency it is something that has a lot of value but if you are a freelancer a consultant some type of developer designer a business consultant whatever that is I would recommend that you look into the loss leader and specifically conducting audits the nice thing for the client is they get to try you out twenty-five hundred bucks is not a huge risk for most clients and at the end they have work product they have something that they can take and say okay I've got this assessment I have the gap analysis and it has recommendations in it it's a pathway forward whether I hire the person that did this for me or not I have a roadmap now of some of the problems that I have to solve and how I should tackle them now ideally you're the person at the table that can do that for them or maybe you can do a majority of those things but some of the other things they'll need to bring someone else in but you've delivered something of value you've been paid for it you've broken through that barrier of paying and Trust and you've developed the relationship and moved it forward all while creating value and getting paid for it not too bad so I would encourage you take a look at the loss leader it's a great tool especially if you're trying to move up the market so for instance if you're trying to land work that's beyond what you typically do you can't show a portfolio of really effective work at that level doing some type of audit or assessment lets you get your foot in the door let's the client try you out with a low-risk and it makes it more comfortable to trust you with the larger project that you can't necessarily show that you've done before in your portfolio you know you can do it but you're trying to grow your business and you're trying to go up the strategy continuum or strata this lets you do that at a low risk to both you that guy's hope this is useful I hope that you can take it and apply it to your business if you have any questions or comments or thoughts if you'd like to share just leave a comment in the section below if you haven't already do me a favor and please subscribe I'm building this channel around entrepreneurship about human creativity value creation wealth things like abundance and fulfillment I'm just so excited about the human ability to create and to transform and to make the world different than it was we're created and designed with this ability and that's what I like talking about and I like talking about it in the context of free markets and entrepreneurship and business so if you are into those things do me a favor and join I'd love to have you become part of the community guys thanks so much I love you all and I'll see you in the next video [Music]

Channel: Mike Gastin

Views: 3,203

Rating: 4.8928571 out of 5

Keywords: mike gastin, gastin, mike, pricing strategy, pricing strategies, pricing strategies marketing, pricing, loss leader, audit, assessment, entrepreneurship, service based business, small business

Id: I9UWJ8tP0xY

Length: 8min 58sec (538 seconds)

Published: Wed Aug 29 2018