{"id":8054,"date":"2020-10-01T15:55:13","date_gmt":"2020-10-01T15:55:13","guid":{"rendered":"http:\/\/blog.growthtools.com\/?p=8054"},"modified":"2020-10-01T16:07:28","modified_gmt":"2020-10-01T16:07:28","slug":"common-pricing-mistake-for-online-courses","status":"publish","type":"post","link":"https:\/\/blog.growthtools.com\/?p=8054","title":{"rendered":"Avoid This Common Pricing Mistake for Online Courses and Coaching Services"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">There is a popular pricing formula that coaches and course creators often use to figure out how much to charge for online products.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">And I\u2019m no longer sure it\u2019s such a great idea.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The thinking goes that you should calculate the average Lifetime Value (LTV) of your customers and charge that up front.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Example:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">You sell a membership site that costs $20 per month.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Your data shows the average customer stays for 8 months.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Your LTV in this scenario is $160.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Instead of selling it $20 per month, this approach would lead you to just charge $160 and collect the entire LTV up front. That way, you have more cash on hand to invest in your business. You also cap the downside on your worst customers (those likely to cancel well before paying you $160).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Totally logical, right?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here\u2019s why it\u2019s a terrible idea\u2026<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While your average customer may have a LTV of $160, you also have a smaller (but significant) number of customers who are worth 10x that value.<\/span><\/p>\n<p><b>These are your Best Fit Customers (BFC).\u00a0<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Your product serves them so well that many will never leave. If an average customer\u2019s LTV is $160, your BFC\u2019s is $1,160 (or beyond).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">By charging your average LTV up front, you cannibalize the upside of your most profitable customers.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Here\u2019s what I think that means for course creators and coaches:<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Charging a 1-time price (or lifetime deal) for your flagship product is a bad idea<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Your BFCs are worth 10x everyone else<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Never cap their LTV<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">What can you do instead?<\/span><\/p>\n<p><span style=\"font-weight: 400;\">One obvious route is to uncap LTV by charging an ongoing monthly fee instead of a one-time fee. You\u2019ll have less cash in the short term, but potentially make a far greater amount long term (depending on your numbers).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I made <\/span><a href=\"https:\/\/docs.google.com\/spreadsheets\/d\/1VINUcHp8HsihBaYtoygE5_wlynOaKAU_eqgKDjCfVEE\/edit#gid=0\" target=\"_blank\" rel=\"noopener noreferrer\"><span style=\"font-weight: 400;\">a simple calculator here that lets you play with the numbers<\/span><\/a><span style=\"font-weight: 400;\"> and see what different scenarios would look like for your business.<\/span><\/p>\n<p><img decoding=\"async\" src=\"data:image\/gif;base64,R0lGODlhAQABAAAAACH5BAEKAAEALAAAAAABAAEAAAICTAEAOw==\" data-src=\"https:\/\/lh4.googleusercontent.com\/R9vbylOo9rKEe1PKFf-xAb0xm2zazgKlljUn8wMRKJO0JUQcbje72j8ZZNyJ3NFblqzPSW6i8x4YjXx109_mTL3dVlmvm40nwEjVt1GJjJ4bRhH-dSBjqYU8GBuhNxTrDzMAdOoc\" \/><noscript><img decoding=\"async\" src=\"https:\/\/lh4.googleusercontent.com\/R9vbylOo9rKEe1PKFf-xAb0xm2zazgKlljUn8wMRKJO0JUQcbje72j8ZZNyJ3NFblqzPSW6i8x4YjXx109_mTL3dVlmvm40nwEjVt1GJjJ4bRhH-dSBjqYU8GBuhNxTrDzMAdOoc\" \/><\/noscript><\/p>\n<p><span style=\"font-weight: 400;\">Another idea is to charge a one-time setup fee, plus a lower ongoing monthly fee (much like Infusionsoft did in the early days).\u00a0<\/span><\/p>\n<p><b>Example:<\/b><\/p>\n<p><span style=\"font-weight: 400;\">Let\u2019s say you sell a $397 course to 1,000 people. ~200 of those people are likely to fall in the BFC category (they would stay with you forever).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">You can uncap their value by charging a $397 setup fee + $19 per month subscription to your course.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Obviously, that might require some changes to the product itself. Perhaps they get a more personalized onboarding experience and ongoing updates, live calls, etc. to justify the subscription.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">There are ramifications and moving parts to all of this, but the math is clear. You\u2019ll cost yourself 2-3x your revenue by charging your average LTV up front.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">I recorded a 5-minute video that walks you through all of this in a bit more detail:<\/span><br \/>\n<a id=\"walkthrough\"><\/a><\/p>\n<h2><span style=\"font-weight: 400;\">Pricing Walkthrough<\/span><\/h2>\n<p><span style=\"font-weight: 400;\"><iframe loading=\"lazy\" src=\"https:\/\/www.youtube.com\/embed\/08wtggFzudQ\" width=\"560\" height=\"315\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/span><\/p>\n<p><span style=\"font-weight: 400;\">Check it out, try the calculator, and let me know if I\u2019m making any errors or faulty assumptions.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>There is a popular pricing formula that coaches and course creators often use to figure out how much to charge&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8054","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=\/wp\/v2\/posts\/8054","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=8054"}],"version-history":[{"count":0,"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=\/wp\/v2\/posts\/8054\/revisions"}],"wp:attachment":[{"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=8054"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=8054"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.growthtools.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=8054"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}