Yeah, you read that headline right.
Today, I’m going to show you a concept I learned in my business capstone class…
Where you lose money on a product, yet, when done right, your profits actually increase.
Let’s get right into it.
Loss Leaders
A loss leader is a product you price so low that you lose money on it…
Because the customer who bought it could bring you far more profits later.
How?
On the back end.
Say you run some sort of online course/coaching business. Your courses probably cost a few hundred, and we’ll say private coaching’s in the thousands of $$$.
Your loss leader might be an ultra-cheap product, say $17. Plenty of people have $17 laying around.
Once they buy, you can wow them with your product much faster. You can then add them to your list of buyers and sell them on the next logical product — something with a higher price tag — on the back-end.
Since they already bought from you and liked the product, selling them on more stuff should be much easier.
You boost your customer loyalty and LTC as well.
Why Not Make it Free?
That’s a good question.
After all, that’s what lead magnets are for. Get their email in exchange for a free report/eBook, right?
Well, for one, making a little bit of cash back is better than nothing — especially if you spent more time and money on this loss leader product.
Making your customers pay for something increases the likelihood they consume it, too. More engagement with your brand, more likelihood they buy something profitable.
How to Use Loss Leaders For Maximum Effect
Upsells
Draw the customer in with a great product at an irresistible price…
Then when they add it to their cart or are checking out, put another higher-priced product in front of them that would solve their next problem.
Basically, think of the next product they’d logically need in their customer journey and sell them on bundling it in right then.
Cross-Sells
Similar to the above, you might offer a helpful product in another category to boost your customer’s AOV.
This works best for digital products since you don’t necessarily have as much cost of goods sold to cover. Cross-selling something at the same price boosts your margins more.
Limited-Time/Place Discounts
Your loss leader doesn’t even have to be a permanent loss leader. You can take an existing product and slice the sale price by some massive amount, like 80%, and drive up the urgency.
For instance, after they download your lead magnet, you might send them to a short VSL thank-you video that upsells them on the heavily discounted product.
Not only do you make a little bit of money here on your lead magnet… but now you can segment this customer by their buyer behavior sell to them accordingly.
Enter a New Market
Expanding into new markets is tough, but can be extremely profitable when done right.
Pricing a product far below what customers might expect makes it much more compelling. Thus, it’s easier to expand into a new market.
From there, you can, of course, upsell and cross-sell.
Loss Leaders Are an Investment
Loss leaders are nothing more than an investment. The profits you forego are the initial investment — if you do things right, you could pull in far more customers and generate a lot more revenue (and profit) down the line.
And, of course, I’m happy to help you devise a loss leader strategy and sell it with some solid copy.