When it comes to information products, the math is usually like this …
“Ok folks … so we’ve got a $20 product which costs nothing to replicate so each sale brings a $20 profit. We convert at 1% which means that 1 out of 100 people will buy this product. By doing some simple math, we’ll earn $200 from each 1000 unique visitors to your website.”
This is the kind of logic usually found in a “biz op scam book” or manuals that promote unrealistic ways to earn money online. In reality that 1000 unique visitors may cost $500 to bring (or it may be free) and there is usually a 10 – 20% refund rate no matter how good your product is.
In reality, traffic costs money and a lot of it. In reality there is no free factor to IM. Yes, posting to a forum in order to get traffic it may be free but it costs you time. If you account for that time by working somewhere else or as a freelancer, you’ll see that 10 hours invested for 100 clicks may mean $1 per click for which you’ve got in return only $20.
This is why most entrepreneurs try to make money on the back-end. They tweak the machine to break-even on the front end (in other words the profits generated cover the costs, nothing less, nothing more, usually even at a 1:1 ratio) and then they back-sell, cross-sell, back-sell, promote affiliate offers and so on through their sales funnel in order to make a profit.
How does this work?
[$1000 per month to get traffic] -> [$1200 in income] -> [$200 lost in refunds] -> [$500 back-sell #1] -> [$750 – back-sell #2] -> [final profit – $1250]
Of course, I haven’t took the operational costs into account here but you can get the point. Break even on the front-end and make the profit on the back-end. Actually, many good marketers say that if you are earning money on the front-end, even one buck, money that is not reinvested into more traffic or better conversion, depending on which you need more, you are doing it wrong.
A second, more advanced strategy is even to lose money on the front-end. When PPC is used, the huge costs associated with it means that unless you are selling a $100 front-end ticket or so, it’s very hard to make a profit.
In a very competitive niche like weight loss, the cost per click can account to $2 and at $2/click and a 1% conversion rate, it would take at least 100 clicks to make a sale (which costs $100).
$100 is very high for a front-end product since a front-end is the entry into the sales funnel, not the goal itself. At $100 per one sale of $20 let’s say, it means that you need to sale an additional $80 in the back-end to break even and anything else after it to make a sale.
It may seem a lot or it may seem difficult but this is the strategy employed by most people. When you know that you can generate an extra $150 as an example from that particular client in the next 31 days, paying $100 to bring him on board is not such a big deal anymore.
Finally, I’d like to end with a tip. Don’t price your front-end product too high. There are a few psychological price barriers you should take note of. The first one is between $0 and $20. The second one is between $20 and $50.
And the third one is between $50 and $100. The higher the tier of the price, the harder it will be to sell. However, in theory and usually even in practice, it’s about the same to sell a $29.99 product as a $49.99 product, as long as you can justify the purchase by offering enough value.