“How much should I charge for a marketing funnel?” I asked. The guy at the event was supposed to be a guru. Talking about how much revenue he’s made through funnels for his customers.
I figured if anyone knew, it’d be him. I was excited to hear his reply.
He looked at me and smiled. “How long is a piece of string?” he replied, clearly very impressed with his own retort.
Fuck. Off.
I’m going to tell you EXACTLY how to price your marketing funnels. Hell, you can use this formula for pricing ALL your products.
Sidenote: Lot’s of the cues are taken from Mike Michalowicz’s excellent book, Profit First. It’s very short and VERY practical. Read it and you won’t need me.
Work out what to deliver, not what to charge
The biggest trap that funnel builders fall into, is trying to think what they’re going to charge for something they’ve come up. Or how much to charge for a basic marketing funnel.
The funny thing is when I’ve told people “you need to charge upwards of $10 000 for your funnel and at least $500 a month” they’ll tell me that sounds too expensive.
“My customers will never pay that, it’s too much. I don’t want to lose customers to cheaper competitors.”
Look, part of this argument is based in your own confidence and psychology. The confidence to know that you could, if someone asked, deliver $10K or $100K or $1m worth of value.
Because if you think a price is too high, for your own products, then what you’re really asking is how much will my customers pay? That’s a dangerous question to ask because it puts control in the hands of your customers.
The market doesn’t determine the price. Weak products LET the market determine the price.
So WHY do we want to know the price of our own products?
Ask yourself why you want to know what you can charge. Is it fear of rejection? That if you tell someone it’s $10 000 you’ll be laughed out of their office?
Or is it because you want to make more profit? So if you charge more you can keep more money?
Why is it you’re unsure of the price for your product? Think about what would happen if you got the price wrong. Too low and you’ll lose money. Or some customers won’t buy because it won’t be perceived as valuable.
If it’s too high, no one will buy (or so you think) and you’ll be run out of business.
Focus on being profitable with one product
Part of the problem we face is that our delivery isn’t standardised. We fool ourselves into thinking that as a service business we should be a customised concierge service.
We’ll listen to what customers think they want and build solutions around their suggestions.
I’ve lost count how many sales people will tell the customer they can add 100 extra things, just to try and get the sale. Then when it’s delivered we a) have no idea how to deliver (fuck it, it’s not their problem anymore) and b) lose money on the project because our delivery isn’t standardised.
Focus on delivering ONE product and getting it profitable. Bending over backwards for customers isn’t how you grow, it’s how you become a doormat.
So with that, let’s look at the formula for pricing your marketing funnels.
Price = Y+E+O+T+P
If you have a product, or service, like a marketing funnel. You should know how long it takes to build it. What the lead time for the project is. Now in an ideal world, you’ll eventually get someone else to deliver the work. But to start we’re going to let you deliver it.
Sidenote: Lot’s of the cues are taken from Mike Michalowicz’s excellent book, Profit First. It’s very short and VERY practical. Read it and you won’t need me.
It starts with how much you need to earn.
Let’s get this out the way. You need a budget. You need to know how much you need to earn, to survive.
It’s simple. Your bills, costs, food, mortgage, rent, and personal costs are what you need to know.
You need to know that number for every month, every week and for the year.
What is this year going to cost you?
For example, I know I have to make £2500 a month MINIMUM to pay for the house, bills, food and other expenses.
That’s £30 000 a year. Which when I look at it, isn’t a huge amount.
But if yours is £5000 a month or $10 000 a month, you need to know that cost.
I don’t have time or space to talk about how to do a personal budget. But the guys at YNAB.com have a load of resources for helping you figure that out.
How much goes to you? (Y)
We’re going to work out your price, based on what you need to make.
We’ve got our Pricing Training Worksheet here that helps you work out the price of your marketing funnels, based on what we’re going to cover here. So click here to sign up and download it.
How much do you need to make then? Let’s stick with my number for this example.
I need £2500 a month. I know a marketing funnel takes 2 months to build, assuming I can’t do any other project work during that time.
So that’s £5000 over two months.
That £5000 is roughly 50% of the project cost. As your revenue goes up, this percentage can go down.
Work out your project expenses (E) and business overheads(O)?
Next, let’s work out how much it costs you to deliver the project to the customer and for the business to run.
List out what you need to deliver the work. These are items that you’re going to use for this one project. They can be monthly, but you need to look at the costs of creating, starting and delivering this project.
How much does it cost your business, to run, even if you haven’t got customers? It’s a horrible thought, but it happens. Rent, costs, bills, staff etc. What do you have to pay for, even if you don’t have customers?
A CRM system per month @ £100
Themes, plugins (even if you’ve already bought them, look at the support costs) @ £500
Hosting per month @ £100
VA for the delivery @ £500
Designer @ £1000
Other expenses @ £500
That gives us a total of roughly £2700. Which is pretty close to the recommended target % of 30%.
Roughly 30% of your invoice to the customer should be project costs.
If you want a TL;DR version: Costs x 3. That’s roughly your price to the customer.
But what if my project costs are way lower than 30%?
It could be that you need £5000 to live for the two months. But your project costs only come to £1000, so roughly 10% of a £10 000 project bill.
This probably means that you either need more projects or cut back your own expenses.
If the £1000 became the 30% of the project, that would be a £3500 project. Which means you could only collect up to £1750 yourself.
So either you need to address your own personal expenses or know that you need to work on 3 projects at a time.
Half your expenses are the tax (T).
Tax is horrible to work out, which is why it’s better to save for it now and let someone else deal with it.
Remember we’ve got our Pricing Training Worksheet here if this is all getting a bit complicated. Download it here and use it to follow along with this guide.
Half your expenses, so roughly 15% needs to go to tax. Some countries are higher and lower, but 15% is a pretty good place to start.
You also need to account for profit (P)
Finally, you need to KEEP some money. Take 5% of the project bill to the customer and keep that for later. Not to spend, but to keep and grow outside of your business. 5% add up over time and you can use it to prove growth and profit to investors, banks and savings.
What are you going to deliver for that price?
Finally, look at that final number. Y+E+O+T+P and write that number down.
How much is that? Because that’s what you’re going to charge the customer.
For us, it looks like it’s about £10 000 for a project and around £500 a month for continued support and marketing.
Now comes the hard part. Write down everything the customer gets for that price.
Just bullet points, but write down the deliverables for when that first deposit hits your bank. What are you going to deliver?
Bearing in mind, we’ve allocated budget for your costs and staff. You now need to work on understanding the value that you’ll deliver to each customer. Create your message and talk to people about how you can help.
My costs are so much higher Mike!
My favourite part is working out project costs. It sounds boring, but it’s so vital to understanding the resources I’ve got.
“But my costs are so much higher Mike! And my customers won’t pay that!” I understand what you’re saying. But are you really happy to charge less and find yourself in financial trouble? I’d rather work hard at finding someone who does want to pay, than working with people who don’t make me any money.
Worst comes to worst. There’s always money in the banana stand 😉
What do you think? Have you read Profit First? Have I missed something? Let me know in the comments below.
