Last week, I received an email from a potential internet marketing consulting client.
Without wanting to give too much away about them, they sell a series of small low-cost items (most priced under $25) in a market where their key online competitors sell similar items for hundreds of dollars.
You’d think with such a compelling price-point, making sales online would be a breeze!
After all, everyone wants a bargain!
But the truth was they weren’t making money.
Yes, they had a compelling product - but they couldn’t afford to get word out, and attract traffic to their website.
So how do you make this business work?
The first thing the client wanted me to do was to help them to make money out of Adwords.
“Fantastic!” I thought - this is where I start my work with most clients.
Here’s what I did:
The first thing I looked at was the Adwords Traffic Estimator tool. It showed that there were roughly 1,000 searches per day around their core keywords, assuming they had a #1 ad position…
…But, in order to obtain #1 position for these keywords, they would need to bid around $1 per click.
With around $10 margin per item, this was going to be unprofitable!
They would need to receive a minimum 10% sales conversion rate in order to make this profitable - incredibly high considering 0.05% (half of one-percent) is generally a good sales conversion rate online.
Do the maths: 0.05% x $25.00 = $0.125
…The maximum they could profitably afford to pay per click was around 12 cents per click - and at these figures, they could only expect around 25 clicks per day…
…They would receive, on average, one sale every 8 days…
…That’s 45 sales per year…
…At around $10 profit per item, this is $450 per year in sales…
Sure, I could make their Adwords profitable by bidding $0.12 per click - but it wouldn’t make their business “work”.
The issue wasn’t their web-site…
They had one of the best designed shopping-cart based web-sites I have ever seen! (In fact, it had a brilliant design concept - categorising items visually around appearance and style!)
The issue wasn’t their Adwords account…
Sure, their Adwords account wasn’t profitable… But it wasn’t Adwords’ fault - there was only a limited amount of traffic, and it was too expensive to capture enough of it
The issue wasn’t their marketing…
They were doing a lot of good things in their marketing…
The issue wasn’t the size of their market…
Based purely on Adwords CPC’s and traffic estimates, the traffic in their market was worth around $1,100 per day… That’s over $400,000 in Adwords - before you even look at getting traffic from affiliates and SEO.
The issue was simple:
The issue was their product! Put simply, their product was TOO CHEAP to compete online.
Their value per visitor, the maximum that they could afford to pay per visitor, was around the $0.12 mark. It was TOO LOW to make any money in their market.
They needed to “control the high-ground” of marketing - they needed their ads to be in the top positions - but with just $0.12 in their war-chest (compared to the $1.10 that their competitors could afford to bid) they couldn’t afford to out-bid the other guy.
With so little profit in their product, they were stuck!
They couldn’t afford to invest in SEO, give away any sort of affiliate commission, or even profitably afford to pay for marketing consulting!
This is why you cannot afford to compete on price when marketing online… because the guy who can afford to pay more for the top positions in Adwords, who can afford to pay for the best SEO, who can afford to pay more in affiliate commissions - they will beat you every time.
Sadly, I had to turn this potential client away because I knew I couldn’t help them to make money if they were competing at the low end of the market..
But if you’re reading this, I DO want to help you.
Over the coming weeks, I’m going to be writing a lot about pricing strategy…
Finding the right price point for your product is something that MOST online marketers don’t understand - but it means the difference between a profitable product, and a dud.
I’m going to show you market testing strategies for finding profitable price points, and why it’s more important to work out what you’re going to sell the product for - before you work out what you’re going to sell.
If you haven’t already, make sure you’re subscribed to my blog via email (by entering your name and email address in the box under my pretty picture ;)). Some of the strategies I’ll share will you were developed as part of the campaign I ran that made $570,000 in 37 minutes - you won’t want to miss them.