By: Adam Cuppy
Starting a business is hard enough; setting your price is like calling the shot blindfolded.
You might have heard of “asymmetrical risk and reward,” but if you haven’t, let me bring you up to speed…
Asymmetrical risk and reward is when you position yourself so that the upside far outweighs the potential downside. The concept is familiar to the financial investing world. So, to put it into those terms, for every $1.00 you invested, you would reasonably assume it would yield $5.00 (5:1). Therefore, by this assessment, you could be wrong four times out of five, but that one time you were right, you would make $5.00 of investment back; it would be a wash.
If you were right two out of five times, however, you would see a massive upside and further protect the downside.
For many entrepreneurs, we’re looking for a marginal return, or, at the very least, a breakeven scenario. We might say “Yes!” to a $1.00 investment that would reasonably assume a $1.50 or $2.00 upside. While doubling your investment is a great success, more is at risk. You would need to see more risky investments succeed, to come out on top, overall.
Tony Robbins uncovered that the most successful business people on the planet are often the least risky. Sure, their bets are much larger than the average person, but the return on investment is almost always exponentially higher.
In many instances, those same people will work harder to protect the downside altogether.
When forming Virgin Atlantic, Richard Branson famously struck a deal with Boeing where he could return the planes, if the business didn’t fail in the first year. Think about that, for a minute: Imagine starting a company where your most substantial cost is at almost no risk to you. WTF?
Do you need to operate on the same scale as Sir Richard? No. But, you can take the same principles and apply them on a smaller size to your business; and, you can start with pricing.
I was coaching a client of mine, and we were discussing an event she was considering for this coming year. She had a moderate following and an excellent reputation in her community. The event cost roughly $10,000.00 to put on. Not too much for a person who ran a multi-million dollar business, but still $10,000.00.
She had produced the event one year prior, and it was “okay, but lost money.” The biggest issue was that there were only a few dozen attendees, and the financial model was based on ticket sales and the prospect of new leads coming from the event – a common assumption. This upcoming year she was willing to keep the budget the same and didn’t want to invest more money in promoting it.
From a break-even point of view, if she sold 100 tickets at $100 for the day, it would be a wash; heck, if she would sell 100 tickets at $200 a piece it would 2x her money; however, that wasn’t the biggest concern. Her time and her speakers’ time was worth a heck of a lot more than $20,000.00.
Let me ask you…
How often have you committed to something, invested a boatload of your time, made a small amount of money, and still said to yourself “That wasn’t worth it?” Your time is precious and investing it into what’s valuable is more important; that’s where she was.
Her ultimate goal is to develop a coaching program for aspiring female entrepreneurs, in additional to being financially successful. None of these goals were going to be satisfied by the event, and she was considering passing on it all together until we found an asymmetrical pricing model that would make it a solid multi-faceted win.
Step 1: What makes it an objective win for you? and, Step 2: for the customer? If she only saw the upside, what would it look like? It was simple: $50,000 (5x the cost) over the first year. Not bad, if you ask me, a 400% profit ($40,000 net profit).
How many attendees could you convert to buyers?
“What would I offer them?” she asked. “It doesn’t matter, yet,” I replied. “Let’s just work the problem back from the goal.” “20%,” she thought.
Okay, so of 100 attendees, she thought she could entice 20 people to buy something she could offer. Makes sense! For starters, those are not a random 100 people – they’re already buyers. She doesn’t have to convince them that she can bring them value – they’re convinced! Now, it’s about aligning a new offering that extends the product they’ve already bought (attendance to the event.)
Step 3: Would you like to supersize your order?
Instead of pitching something categorically new – and therefore, converting her attendees (existing buyers) back into new customers – it’s more useful to upsell/upgrade their current purchase.
In her case, it was private 1-on-1 coaching and access to her monthly training program. Again, they’ve already come to learn and grow. Why not get even more value with those same experts (her and her colleagues) providing specific guidance to you (the attendees) and your business? It’s reasonable to assume it would come at a higher cost and it would require more than a single coaching session.
Working the numbers backward from $50,000.00 (the goal) she wanted to determine an asymmetrical pricing model for 20 people (of 100 attendees). To reach $50,000 she would need to generate $2,500/year from each of those signups. $2,500 over 12 months is $208.33 per month.
She’s confident she can provide 2 – 3x that much value to those customers through her coaching. That’s awesome! And leads me to my next point: asymmetrical value for the customer. How can you bring exponentially more value to the customer? The value they see in a measurable, objective way?
There is only one risk at this point: 20 attendees don’t sign up.
To protect her goal, she needs a one-year commitment of $2,500. The customer can pay monthly, but if they cancel three months in, she’s lost control of her achievement. However, $2,500 is a lot.
“What if I offer a one-month money-back guarantee?”
“Great idea.” However, now we’re presenting a new mix up in our calculation. If two people of the 20 sign up, then cancel, she’s down to 18, and shy of her goal. The asymmetrical fix is to change the calculation and spread the total goal amount out amongst the remaining people.
If you assume the unlikely risk that two of 20 will call the guarantee, then base the price on 18 people following through for a year. Instead of $50,000 / 20, change it to $50,000 / 18, which would increase the monthly cost per customer from $208.33 to $231.48, or $23.15 more per month – nothing!
That way, even though she’s confident not one customer will ask for their money back, she’s set up to reach her goal with her worst case scenario.
The only way she can do this is to provide exponentially more measurable value than the cost. If she’s offering $500, $600, $700 of quantifiable value for $231.48 (rounded to $250/month, of course), then it’s still asymmetrical value to the customer.
Step 4+: Where can you re-purpose and re-release?
Taking it one step further…
She found that the curriculum she is developing for her monthly program can become the outline/content for her book, which in turn will drive more traffic back to her events, increase attendance and provide even more financial opportunity.
Question to determine asymmetrical pricing
• Does the value to the customer far exceed the cost (asymmetrical value)?
• Am I measuring and relaying the value to the customer?
• Have I accounted for the cost of any guarantees or rebates that I’m providing?
• Am I giving up control of my achievement by allowing my customer to back out early without accounting for that?
Who am I?
I’m the Chief Operating Officer at ZEAL. We work directly with mid-to-large scale enterprise product owners, software developers and project managers to develop a procedural recipe that’s unique to the business, fosters confidence in the team, manages uncertainty, protects the integrity of the product delivers quality features continuously, and with as little friction as possible. A process that your team can maintain and build upon when we’re done.
“Not a best-selling author. Not a Fortune 500 CEO. Not a Nobel Prize recipient. Regardless…
I co-founded a culture-focused company that I would want to work for; with core values that I stand behind; where I collaborate with people who care.
My mission in life: To amplify the greatness of others, and create a lasting impression in their lives.”