The Lazy Man's Way To Riches

Once again, the answer should be viewed with flexibility, but the general rule of thumb is this: Your selling price must be at least three times the actual cost. This is not just the cost that you paid for the item (or the cost of time and supplies if you made it on your own) but, also, the cost of packaging (materials and labor) and the cost of postage.

As a simple example, a widget with an actual cost of $1 will sell for $3. However, some products can accommodate a greater increase. How do you determine if the item is selling for too much (and if it's too much, your returns will be low) or too little? The answer is TESTING.

ABT – Always be Testing

 Direct response through email or other media, is the best way of approach.

Let's say you're undecided whether to charge $15, $20 or $25: To test, you prepare mailing pieces that are identical in every detail, except one . . . the price.

Then, for this purpose, you divide your prospects into three parts. Let's say that you are going to mail 3,000 emails to people who should be interested in what you're selling. I say 3,000 because the larger the “sample” the more you can rely on the results. What you would do is mail a thousand emails offering the $15 price, a thousand emails offering the $20 price, and another thousand at the $25 price.

Be sure that the only difference between the emails is the price, and be sure the emails are all mailed at the same time. That's because the time at which people receive an email can have a strong influence on whether they respond to it or not. Furthermore, when you're testing be sure that the different offers are equally distributed if there's an economic differential in the areas to which you're mailing.

When you get the orders, tabulate the results. The price offer that produced the greatest number of dollars is the one you'll probably want to use from then on. However, if the difference in response is less than 5%, you usually go with the lower price.

For example, let's suppose you get a hundred orders at $15 ($1500), ninety orders at $20 ($1800), and seventy orders at $25 ($1750). The price you'd set would be $20.

First, because the difference between dollar returns on the $20 offer and $25 offer is statistically insignificant. Statisticians tell us that you have to allow for a 5% “error.”

Second, your $20 offer produced almost 28% more customers, and those names are valuable ...for your own use in mailing similar or related offers in the future, and to rent to other people in the direct response business.

Testing and careful consideration for your products are important factors for direct response. Remember, too, that your own experience will prove to be a valuable source for your success.