The point of any business is to offer a beneficial product or service to the customer. However, of course, the business also needs to be profitable in order to thrive.
Unfortunately, there are many great businesses out there that either struggle or go under, simply because they are not making a profit.
Fortunately, with a few clever tweaks, an unprofitable business can often be turned around to become highly profitable with the use of a value ladder.
What is a value ladder and how can you incorporate one into your business?
- 1 What Is a Value Ladder
- 1.1 The Strategic Importance of a Value Ladder
- 1.2 Entice Your Customers with the Next Steps on Your Value Ladder
- 1.3 Setting the Right Prices On Your Value Ladder
- 1.4 Implement a Value Ladder in Your Business and Reap the Rewards
What Is a Value Ladder
A value ladder is basically a system in which you have an offer to get the customer in the door, followed by a series of additional products that you will offer the customer a little further down the line.
Each additional product you offer the customer is the next step up in your value ladder and must fulfil three requirements:
- Be of value to the customer
- Have a perceived value by the customer as more valuable than the previous offer
- Have a higher ticket price than the previous offer
This way, you are introducing offerings with greater value to the customer in order to give them a greater experience with you and your business.
By doing this, it will be natural to then get the customer to purchase more from you, in turn making your business more profitable.
This article will give you a good understanding of the value ladder and some ideas of how you can use them too.
However, if you want to successfully incorporate one into your business and make a big difference to your income then get the free Dotcom Secrets book here which shows you how to do it.
The Strategic Importance of a Value Ladder
I thought it would be helpful to elaborate further on the strategic importance of a value ladder through the use of this video by Jan Jegan.
Jegen states that a value ladder is a manner of gradually making your business more profitable while offering your customers more value over time.
See also: How to get Traffic to your offers
The first step of the ladder is an incentive, such as a free or heavily discounted offer. Jegen calls this the ‘bait’. It is also often called a lead magnet or a freebie. Such an offer is designed to woo your customers into doing business with you.
So, the next time you encounter a company offering free or discount coupons, then it could be part of their value ladder! If the offer attracts the attention of customers, then the ball is definitely rolling.
Since the video gives the example of a dentist, I will use it as well for the sake of simplicity.
The bait, in this case, will be free teeth cleaning offer. If the customer is satisfied with the offer and the service provided, this will lead to two things:
- A level of trust will be established
- Repeat business is likely
Those who return will take the next step on the value ladder when they are offered a higher priced product. Therefore, we can safely assume that the initial step of the value ladder is the most crucial one.
Now the first step of the value ladder should be clear with the help of the above video, I will tell you about the next steps on the ladder.
Entice Your Customers with the Next Steps on Your Value Ladder
Step 2: Initial Offer
If you are a dentist, then you can, of course, use your own offerings. These are just examples. This stage is also known as the ‘front end offer’ according to Jegen.
This step makes sense for a number of reasons. Firstly, it is a natural progression from the first step.
Secondly, offering teeth cleanings on a bi-annual basis ranks higher in terms of the price and the perceived value as well.
Thirdly, it is also likely to cover the costs of any promotions offered as bait. We can conclude that the reason for the customer’s second visit is the next step of the process.
Step 3: First Tier
The third step is called the ‘first tier’ or the ‘middle priced offer’. At this point, the onus is on the customers to approach your business and seek specific services.
With regards to a dentist, this may be a teeth whitening appointment. Getting your teeth whitened is neither a run of the mill procedure nor is it done regularly.
Typically, patients will be required to visit the dentist for multiple sessions before the process is complete.
This falls in line with the price and value axis. Teeth whitening is more valuable than the routine teeth cleaning procedure.
It is certainly more expensive and has more mileage than your standard teeth cleaning.
Step 4: Second Tier
This step may also be referred to as the ‘continuity program’. At this point, the services you are providing will not be average and the same can be said about your customers.
Only those who want more expensive services will call you.
For instance, if you’re a dentist, then patients may schedule an appointment because they need retainers. According to MedicineNet, retainers are custom made devices and often necessary after active orthodontic treatment. More importantly, they ensure that your teeth remain in position.
The reason I digressed is to show you that not every patient will require retainers. In fact, only a small number of customers will. This also means that they may rank higher on the price-value spectrum.
Step 5: Top Tier
The final step on the value ladder is known as the ‘high-end offer’ or the ‘back end’. As the title suggests, this is the uppermost service that a business can provide.
In the case of a dentist, it may be the filling of a cavity or a root canal procedure. The fifth step is where the price is the highest and so is the value. The patient will have a pressing need that the dentist will address and the dentist will be well compensated for this.
Setting the Right Prices On Your Value Ladder
I believe the central aim of a value ladder is to maximize customer value. However, pricing plays an integral role in this equation as it increases the clients’ perception of value and also makes the business more profitable.
I will move away from the dentist example and use another business to illustrate the significance of pricing.
Imagine a scenario where you are looking for a gym membership. Also, presume that you will also look for a personal trainer once you are a member.
Now, if there is a gym that is offering an exciting package for a limited time, it may grab your interest. The bait might be a free training session with a personal trainer. Every step beyond that will include a new, higher price.
The initial offer may be something like a paid training plan for members whereas the first tier may involve a paid meal plan and nutritional advice as well.
By now I’m sure you get the gist of it: a second tier offer may include a subscription to classes while a top tier step might be a yearlong enrolment in training sessions.
What we need to understand about the value ladder is that the pricing is imperative. The price is directly proportional to the steps on the value ladder. It builds up with each step. However, what is very important is how the offers are prices as the value ladder progresses.
If you want to learn how to use a value ladder properly in your business then I highly recommend you get Russell Brunson’s book, Dotcom Secrets. Here are just a few of the things covered in his book:
We know that the lead magnet is a free offer. The price of the initial offer is where it gets interesting.
As an example, an initial offer could be less than $10 dollars. Like I mentioned earlier, the initial offer should cover the expense of advertising and also create customers.
The next step is the first tier and its corresponding price range might be less than $100 dollars. At this stage, the firm is able to generate profit. From the customer perspective, they are obtaining augmented value from the business and they have not parted with too much money. They get a chance to sample your products and services at an affordable price.
The first tier is a natural progression from the initial offer because not only do profits increase but a level of trust is also established between both parties at this stage.
The penultimate stage is the second tier. At this stage, a business may provide products that could fall into the $1,000 dollars range.
At this stage, the business viewpoint is that sales must yield profits and there must be some form of brand loyalty, which leads to recurring revenue.
This brings us to the last step of the value ladder. The top tier is where a firm sells its most expensive or high-end offers. The price point is likely to exceed the $1,000 dollars threshold.
Profits are at their highest at this stage. The service provided by the business may not have an overwhelming number of customers but the ones that stick around will be loyal. This will result in recurring profits in the long run.
Implement a Value Ladder in Your Business and Reap the Rewards
So, there is a ton of evidence above that suggests why your business needs a value ladder.
If you’re still wondering why your business needs a value ladder, let me simplify it for you.
Sarah Morrison argues that value ladders are pivotal because they accelerate the revenue a business can generate. She insists that the concept of a value ladder allows the business to see the bigger picture.
This is beneficial because the firm can tailor their services accordingly and usher their business towards new growth. Offering potential customers an incentive is a deliberate strategy that can produce profits in the long term.
So, a value ladder becomes lucrative when customers return for more business. This, of course, means more revenue for your business.
Furthermore, as James Thomson explains, utilizing a value ladder enables entrepreneurs to recognize the customer’s position and choices. It can lead to a better appreciation of the sequence of a value ladder. It also helps in their business decisions.
So, all this is basically the crux of a value ladder. If you want to massively increase your profits then you’re gonna need a value ladder.
Value ladders make it crystal clear that customers make purchases based on value and not prices. Therefore, you’re going to need to convince your customers that you’re offering them great value.
Following a value ladder also allows entrepreneurs to build trust with their customers. Simultaneously, it gives customers more buying options as well. This means the business can increase their sales.
All in all, a well-crafted value ladder has the power to transform your entire business! The value proposition or the free offer can enhance your business prospects. If you follow the value ladder model, the eventual outcome is a combination of more sales and greater improved customer satisfaction.
As long as you are able to tempt new customers with an exciting lead magnet, following a value ladder will ensure that your business is on track for success.