When it comes to your ecom business. Are you maximizing the value from your customer?
If you answered “no”…
Just imagine if you could maximize the value you get from your customers with a system.
This system is called a “Value Ladder” and its designed to maximize more value from your customers over time. Without directly asking… there’s no way of knowing exactly how much money a customer has to spend with your business. Even if you are in an industry that allows you to ask, it’s very possible that the customer will lie or underestimate their spending power.
A value ladder is simply a range of products or services that ascend in price. From your lowest value offer (used as bait to increase list size, prove your value and boost awareness) to your highest priced premium product. Over time the customer is directed to climb through every stage of your value ladder, maximizing the return a business makes on a customer.
To prove the power of the value ladder, let’s take a look at an example:
Lets say that the only offer your ecom store makes to new prospects is a free or incentivized offer, or very low priced product (depending on your industry). This could be in the form of a discount on shopping for signing up to your email list. After this, you only make an offer to the next tier of your value ladder. This continues indefinitely (the best value ladders either have no end point, or finish with a high value repeat spending option like a subscription).
An example would be if our business presents something for free ($0.00) and then adds on products costing $5, $15, $30, $75, $125, $250, $500 etc.
To demonstrate the “value” of a value ladder, let’s say we have three customers in our business, each with different spending behaviors.
- Customer A has $20 to spend
- Customer B has $50 to spend
- Customer C has $250 to spend
Customer A takes the free $0 offer because he has nothing to lose. He received so much value that he decided to purchase the next two tiers. In total, he spends his entire $20 budget.
Customer B also takes the $0 offer and is very impressed. He buys the next three tiers — $5, $15 and $30. In total he spends $50.
Customer C is walked through the $0 offer and instantly buys the next 4 value ladder tiers- $5, $15, $30, $75, spending a total of $125. He is so impressed by the amount he has received for half of his budget, that he purchases the next offer at $125. In total he spends his $250.
In this scenario, the entire $320 is captured and the customer’s spending power is maximized.
So how do you structure an effective value ladder?
When structuring your value ladder, keep in mind that this is the most important step to its success. Now before you head off and start developing the steps of your value ladder, you must understand something.
Your first offer must be irresistible! This is usually something that a prospect would normally have to pay for. When you do this, every prospect who accepts your free or low end offer sees that your business truly offers amazing value. What this does is make them much more likely to purchase the next few tiers of your value ladder.
The FREE (or low cost) offer acts as bait to your prospect. It draws your ideal customer into your funnel, increasing the number of prospects who enter your value ladder, boosting awareness and building a list (that can be continually marketed to in the future).
The next offer covers the costs of the initial free offer as well as itself. E.g. if the free offer costs your ecom business $2 and the first offer costs $3, the sales price is $5 (this excludes marketing costs, so factor that in if there is any). So far, all you’ve done is break even, but you’ve provided 2 products to a customer at a price they wouldn’t be able to get anywhere else!
Moving up the ladder another step. The next offer and every offer after it provides your company with profit in gradually increasing margins.
After you provide the initial $0 priced product, many prospects will try to purchase the next 3 or 4 tiers of your value ladder in one go! If this happens, make sure they don’t skip any of the steps! A value ladder only maximizes customer value if they have to buy in ascending increments.
Let’s Share a Real World Example
Arts & Crafts eCom Store:
- Free Low ticket + shipping offer
- Customer upgrades to arts and craft beginner set
- Additional upsells for better results
- Customer upgrades to subscription service
Home Fitness eCom Store:
- Offer a Free guide/video/email course series
- Prospect upgrades to a low cost home gym offer
- Upsell additional offers for better results. More equipment, training gear, nutritional supplements etc
- Customer upgrades to an online coaching program
So What The Conclusion?
So there you have it!
A well thought out and structured value ladder has the power of attracting your target audience to give them a taste for what you have to offer. Once they take that micro commitment with little to no risk or financial commitment, they get to experience what you have to offer as a brand and demonstrate that what you do… can help them solve a problem they are experiencing or a desire they wish to fulfill.
The value proposition that begins at the start of your value ladder (free/low cost offer) will drive more targeted prospects into your sales funnel. This then increases brand awareness and enhances your prospecting list.
Creating a value proposition that hook’s new prospects and customers into your business, can liquidate your costs and marketing spend in the first 2–3 steps of your value ladder. Couple this with a solid a backend that maximizes the spending potential of your most valuable customers, can seriously increase the lifetime and average order value of your customers.
