How Fast Does Investment Return with a Traditional Funnel?
Imagine now that within the first two weeks we have 10% of our subscribers become buyers, so that’s 100 sales at $10. We take in $1,000 on the front end, 1000 subscribers, we take in $1 per subscriber within the first two weeks. If we are paying $2 per subscriber on average, even after two weeks, we are still in the hole by 50% of our investment. We’ll make it up in the long run, we’re just contrasting it right now. Then we take this to the next level and we assume that 10% of the people that bought at the $10 level will now invest in $100 per month hypothetically.
That means we would have 10 sales at $100 per month. We would have invested $2000 for 1000 subscribers, the first two weeks we generate $1000, so we put half back into our pocket. Over the next two weeks, we would have generated another $1000 on the first month’s payments. We would have then broken even on our initial investment. That’s still a cool place to be as most people don’t break even on their initial investment.
Every month for the next 9 months, we’ll take in $1000 give or take on those initial coaching clients. There will normally be some drop off or retention issues which over time, so that number will go down. If we were to collect all of it, it would take most of the course of the year for us to do this.
Remember, too, you’re layering on top of that any additional trainings that you may sell. That would give you additional revenue so you would end up, after 2 or 3 years, at $20-$30 per subscriber. You’re moving people from a lower priced item to a higher priced item.
You might ask, “What if we have a $37 item instead of a $10 item?” That might change the economics right? Yes, and no, what we find is that if we increase the price to $37 we generally see a drop off in conversion – roughly 2/3 the conversion. So instead of having 100 buyers at $10, you might have 7-8 buyers at $37.
This would give you the same amount of money, just less buyers, which is okay, but the interesting thing is if we go with entry level amount of $37 instead of $10, we have fewer “tire kickers.” Most people that buy $10 items will typically not buy anything over $10. It’s just their mentality, and you and I both know that it’s difficult to get genuine value for $10. They might get something valuable for $10 but they stay in that cycle of buying things for only $10 and never graduate to a higher level. What that means is that the conversion rate from your $10 item to your coaching program is much lower. This is all on average, it does depend on what you sell and what you’re offering in the beginning, so this may vary depending on your niche and situation.
If we open up with $37 for that initial item, we tend to see upsell conversion rates to the coaching program at 20%-30%. This means at 30%, you’d still get the same number of long term coaching clients as you would at $10. So changing the initial buy in from $10-$37 or the other way around, doesn’t change the economics in the long run very much in my experience. The question becomes, “Why sell at $37 if you can have more buyers at $10 or $7?” The answer is that $37 buyers tend to require less customer service than $10 buyers. If we’re going to break even in the long run, let’s go ahead and go with the $37 buyers. Let’s contrast a different way of doing this. We started with $10 or $37 and 1000 subscribers; it does pay off eventually, it creates revenue and profit over the course of the year.