Today we get some great, detailed information about transitioning from giving away all your content for free on a blog to selling well-priced products and services. Our guest expert is Ramit Sethi from I Will Teach You to be Rich.
Ramit and I have known each other a long time, in Internet years anyway. I have watched his company growth with a watchful eye, since I really admire his business sense and personal backbone. He is one of my young mentors.
Please take the time to follow the links in this post, since I think reading the comments from real readers gives you a great sense of what to expect from moving from free to paid services. Not that all your readers are as, um, forthright as Ramit’s.
Pam: You are a great example of someone who went from a totally free blog (www.iwillteachyoutoberich.com) to a book to a range of product and service offerings. How did you handle the unique pricing challenges that face bloggers who go from free to fee?
Ramit: I didn’t put ads on my site for 3 years because I was worried about credibility (especially with a name like “I Will Teach You To Be Rich”). And I was more interested in building a brand than direct monetization. But finally, I decided to ask my readers what they thought of ads, and 81% of them said they wouldn’t mind unobtrusive ads.
So I tried that for a while. Eventually I decided to try releasing a product, so I wrote an ebook and priced it at $4.95 — just to see if people would pay for value. Over 1,000 people did, so I realized people would pay for great content if it helped them.
The key challenges have been:
- Making the transition from free to paid. Some people don’t like change, especially when they’ve been getting everything for free. Ultimately, though, I can offer a much higher quality product — video courses, case studies, live webcasts — if it’s paid for. You can use tactics like money-back guarantees and free samples. But ultimately, some people are not going to be happy and that’s fine…they can continue to get the free stuff while others go deeper with paid stuff.
- Demonstrating to people that paying for value is important. Too many people online expect everything to be free. I constantly talk about how paying for value is important — and then I try to show people by illustrating what I pay for, and why it’s better than trying to get everything for free.
- Highlighting the psychology of freeloaders. It goes something like this: “Why would I pay for this? I could get all this information for free…” Sure, you probably could…but have you? A lot of readers read 15 blogs each day, but have they actually automated their finances, cut expenses, started earning more, and negotiated fees? Action is more important than reading.
Pam: A lot of my readers worry about charging for the first time. How did you get through that?
Ramit: Instead of me talking about it, check out what my readers said.
- My first paid product. See the comments: http://www.iwillteachyoutoberich.com/blog/ramits-2007-guide-to-kicking-ass/ Notice the comments. They will seem VERY familiar to anyone charging for the first time. People complaining about the price, deciding it’s not worth it from only reading the table of contents, complaining about paying via Paypal and other weird irrelevant points. Bottom line: They are not seeing the value of the product because I haven’t yet established myself as a premium brand.
- Compare that to the comments on my Scrooge Strategy launch: http://www.iwillteachyoutoberich.com/blog/announcing-the-scrooge-strategy-premium-savings-tips/ a couple years later (and note the comments on another blog where people aren’t used to me or paying for my products: http://www.getrichslowly.org/blog/2009/01/13/save-money-with-the-scrooge-strategy/
- And compare that to my recent Boot Camp launch: http://www.iwillteachyoutoberich.com/blog/announcing-the-i-will-teach-you-to-be-rich-boot-camp/
You can literally see the commenters become more comfortable paying for value. But notice that it takes time, conditioning, and patience!
Pam: Why do new entrepreneurs get paralyzed with pricing? How can they break this paralysis?
Ramit: This happened at my prior startup: We spent months debating pricing and finally our board blew up and told us to just get something out there.
You can spend months strategizing on pricing, or you can pick a reasonable number, roll it out to the market, and tweak based on what their response is.
I call this the 85% Solution: Get 85% of the way there and get on with your life. Your end goal isn’t really to optimize your pricing — it’s to get consistent business and live a lifestyle of your choosing.
To get specific on pricing, here’s a common mistake I’ve made: I picked a number that sounded reasonable (“I think $20/hour is fair”), which was of course too low and completely off the top of my head.
Gut feel is important. But I encourage entrepreneurs to match it up with some competitive research: What are others charging? Do they have products/services on the backend? For example, charging even $150/hour is a difficult business when you factor in prep time, cancellations, and other invisible costs.
So research matters. But ultimately, it helps to pick a price and test it: See what the market says (i.e., do you get customers), and then figure out how to adapt your services and pricing to generate more revenue.
Pam: In an earlier conversation, you mentioned to me that people should “work with people where the price is worth it.” What do you mean by this?
Ramit: Years ago, American Airlines removed one olive from each first-class salad, resulting in $40,000 savings each year.
If you were the consultant who recommended this, how much could you charge?
The point is this: Remember that to justify a higher price, you have to work with people where changes will generate large results.
I’ve seen this happen: Let’s say based on some market testing and gut feel, you decide your consulting services should cost $200/hour. But if your audience consists of people just starting out their business, it’s going to be nearly impossible to charge $200/hour. Even if they thought it was worth it, they simply won’t have the money to pay you.
I was recently doing some consulting for a woman who paid me $17,000. After our first phone call, here’s a direct quote from what she sent me:
So, I hung up the phone Friday and my first thought was, “Geez, THAT was probably worth 17 grand.”
It’s not just my advice. It’s the fact that she has a business where a small change can produce enormous results.
Whether your clients are doing high-volume or high-priced work, you can justify higher fees if your results will generate extremely large results.
Ramit and I have both been the benefactors of enterprising new entrepreneurs who pitched us free services for a trial period, then proposed paid services, which we eagerly bought. Watch our 10-minute discussion about this pricing strategy on this video (link here)
If you want to read the post Ramit mentioned about Charlie Hoehn’s ebook Recession-Proof Graduate, see here.
Thanks Ramit for sharing your pricing journey with us! Find him at iwillteachyoutoberich.com
Next up in the pricing series tomorrow: Thought Leader International CEO Andrea J. Lee. This is a practical, juicy interview, and I can’t wait till you hear it!