The Value Ladder and What it Means for Your Business

By George Black | Business Strategy

Is your business leaving money on the table? What kind of options do your clients have when they want to make a purchase? If you haven’t created a value ladder for your business, then you’re probably not generating nearly as many sales as you could be.

How It Works 

Value ladders give your business structure and help you maximize profit by making different product or service options available at different payment tiers. The benefits of this are two-fold:

1. Clients have more options available, so they’re more likely to find an option that fits their needs.

2. As your clients grow, they can ascend up the ladder with your business instead of needing to find a new business that fits their needs

Essentially, your clients can find a free or very inexpensive option towards the bottom of the ladder. When they need more, they can move up to one of the more expensive options. Since they’ve already chosen your business in the past and benefited from it, it’s more likely that they will continue to choose your business to fulfill future needs.

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Compare that to a business that has only one product or service at one price. Clients only have one decision to make – do they want to purchase it or not? If the answer is “no,” then they’ll have to find another business. Even if the answer is “yes,” they won’t be able to come back to this business in the future when their needs change.

Summary:

  • Value ladders help you maximize profit by making your product or service available at different payment tiers. 
  • More options means clients are more likely to find something that fits their needs. 
  • Value ladders make allow clients to grow with you instead of finding a new business to fit their needs. 

Creating Your Value Ladder

Now that you have an idea of what a value ladder is, you can build one for your own business. Every business’s ladder will be a bit different, because every business has its own products or services. However, you can get a general idea of how to structure your ladder by seeing examples of one in action.

~Stage 1 – Freebies

The first rung in the ladder is designed to bring in potential sales leads. Products and services at this level are typically free.

Common examples of this stage include:

  • Blog Posts
  • E-Books
  •  How-To Videos
  •  Free Samples
  • Free Trial Offers

This is how you bring people to your site. Most clients aren’t going to simply find your site and decide to buy from you right away. They’ll need to visit multiple times before making a purchase. While this stage of the ladder does require a time commitment and you’re not getting an immediate return on your investment, it’s invaluable in the long run.

Clients may not decide to buy from you after reading one blog post or watching one of your videos. But when they keep coming back to your blog or your YouTube channel for more information, they’ll see the value in what you’re providing. This will motivate them to take the next step up the ladder.

This stage also utilizes reciprocity, a powerful concept in persuasion. When you provide something to a person, they are more likely to give you something in return. By providing valuable information to your clients, they’ll start to feel indebted to you. The next time they need to make a purchase for the type of product/service they’ll provide, they may choose you simply because you have already provided something to them free of charge.

Stage 1:

  • Is typically free. Designed to bring people to your site multiple times, build value on what you have to offer, and generate leads for sales. 

~Stage 2 – The First Offer

At the second stage, you’re making your first sales offer to potential clients. That offer will be one of your most affordable products or services, whether that’s a book, a course, an email consultation, or something else entirely.

You’re still not making much of a profit at this stage, but you are recouping your costs and you could make money if you have an item that generates passive income (such as an online course). More important at this stage is that you qualify your clients. Of the clients that you obtained through the first stage, many will only be looking for freebies. Others who are willing to spend money are most likely to start with something small, which is where this first offer comes into play.

Stage 2:

  • This is where you offer your most affordable items to your potential clients. Some may be just in it for the free stuff and some may willing to investigate you further and see if your business fits their needs. 

~Stage 3 – The Middle Ground

Next, you’ll have your mid-tier products or services. These will require a bigger financial commitment than the first offer, but will also provide much greater value to your client. Perhaps your first offer was a one-hour online course, and your mid-tier offer is an online course with five one-hour segments. If your first offer was an email consultation, your second offer could be a phone consultation.

When clients move up to this stage, you’re continuing to build trust with them. This happens gradually, which is why it’s important to have multiple tiers to your product or service. A client is unlikely to buy your $25 book and then your $500 customized product. It’s far more likely that they’ll buy your $25 book, get enough value from that to try your $200 course, and then commit to your customized product after that.

Stage 3:

  • Mid tier items. Clients will have to spend more but will be provided with much greater value from your products or service at this stage. You are building greater trust with your clients. 

~Stage 4 – The High End

This stage includes your high-dollar items. That could be an extensive course, a membership to your site, or a customized product/service designed to fit your client’s needs. Ideally, you want something that helps you generate passive income, recurring income, or both.

At this point, you’ve moved from the trust building phase to the maximize profit phase. The items in this stage of your ladder are the ones with high profit margins. It may take some time (weeks, months, or even longer) for clients to move from stage 1 to stage 4, but that’s where you’re going to make the majority of your money.

Stage 4:

  • High dollar items. You are moving from building trust to maximizing profit at this stage. 

~Stage 5 – The Best of the Best

This is exactly what it sounds like – the absolute best product/service that you offer. If you are providing marketing services and your previous offers were consultations via email, phone, and then a video chat, this could be where a client hires you to come up with a comprehensive marketing strategy for them.

Most clients will stop at stage 4, but you’ll make quite a bit of money on those who move up to stage 5. By positioning one product/service as the best of the best, you can also draw in those clients who are willing to spend money to get the best available offer right away.

Stage 5:

  •  The absolute best you have to offer. Most clients will stop at 4, but this allows clients the option to get the absolute best your business has to offer. 


Create Your Own Number of Stages

You may be wondering if these ladders always have five stages, and the answer is no. Set up a ladder that fits your business.

Your business may only need a three-stage ladder, or it may need a seven-stage ladder. Five is a good number because it provides clients with plenty of options and allows them to gradually move up, but your business may have other needs.

The Alternative to the Value Ladder – Spokes

Not every business can use the ladder model, and that’s especially true with businesses that sell physical products. That doesn’t mean you’re out of luck, you just have to adjust your sales structure.

If you’re selling one core product, instead of creating a ladder, you can add accessories that go with that product. This is called a spokes model, because you have one core product and several related items surrounding it like spokes on a wheel.

Consider a furniture store as an example of this method in action. A customer comes in to the store to buy a leather sofa. In this case, there’s really no ladder that the store can set up. It’s not normal buying behavior for a customer to buy a sofa, and then decide later to buy an even more expensive sofa based on the quality of the first one. In all likelihood, they’re going to keep that sofa for as long as they can, because it’s a big-ticket item and they won’t have any need for a new one.

What the furniture store can do is offer accessories that will go with that sofa, such as accent tables, floor lamps, love seats, or Ottomans. All these accessories are spokes around that core product. 

Switching It Up

Don’t be afraid to change the order of your ladder to see if it improves results. One option is reversing the order, after your initial freebie. You hook the client with that freebie, and then present your best offer. If they don’t want that, you can start offering lower-tier items as down-sells. This could lead to more clients starting in those higher-priced tiers.

Experiment and see what works best for your business.

Summary:

  • Not every business can use the ladder format so you may have to adjust your sales structure to make it work. 
  • If you have one core product, use the "spoke model." Create add-ons and accessories to your product. 
  • Don't be afraid to switch it up! Move things around on the ladder and find what works. 

Final Thoughts 

More than ever, clients make their purchasing decisions based on value, not price. To show clients the value of what you offer, you need to build trust with them.

With value ladders, you build that trust over a period of time. It also gives your clients more options, which means you have more opportunities to make the sale.

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About the Author

George is author of "The Next Level Entrepreneur" and has spent more than 25 years of working with companies of all sizes guiding them to their Next Level. He draws on his extensive business acumen to provide direction, growth solutions, and clarity to millennial entrepreneurs.

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