Saturday, November 10, 2007

Marketing 101 - Choosing a Price Point

Here's my story: In 1999, affiliate marketing was still pretty new. I was working as the webmaster for an ecommerce site and part of my responsibilities was to run the monthly affiliate sales report so commission checks could be cut. The ecommerce segment was home goods and the top affiliate usually earned around $800 a month. Running that report month after month and seeing that money go out was enough to convince me that I needed to get into the affiliate game. I also wanted to grow my web development skills. So building an affiliate site seemed like the perfect way to do both.

I'm a geek. I like computers and role playing games and science fiction books and movies. So I figured my site would be a site for book reviews: database backend, searchable and all that. I started building it in the summer of 2000, teaching myself ASP and SQL as I went along. The site went live in early 2001 and I started writing and loading book reviews. Each review also had affiliate links to Amazon and Barnes and Noble. I kept adding review, traffic grew (albeit slowly)m and occasionally a visitor clicked through one of the affiliate links and bought something. A little bit of change headed my way. A very little bit.

I've been running the site for almost 7 years now, but it didn't take me long to figure something out from running it, something that has driven all my other affiliate marketing efforts since.

The average paperback goes for about $7. The commission (average 7%) on a $7 paperback book is 49 cents. 49 cents! So all I needed to do was sell 10,000 books a month and I could quit my day job. Like that was going to happen. You have to sell a lot of books at that rate to make anything even resembling an extra income.

So here's the lesson, the fruit of my labors, sliced and sugared for your consumption, which I call the Law of Selling Something:

If someone is looking to buy a book, you can sell them a book. They know how much a book costs and are mentally prepared to spend that amount and not much more. If someone is looking to buy a DVD player, you can sell them a DVD player. They know how much a DVD player costs and are mentally prepared to spend that amount and not much more. If someone is looking to buy a computer monitor, you can sell them a computer monitor. They know how much a computer monitor costs and are mentally prepared to spend that amount and not much more.

So the Law boils do to this: it's much, much easier to sell someone something they are looking for regardless of the price than it is to sell them something they aren't looking for. Almost universally, this means it's just as easy to sell someone something that costs around $100 as it is to sell them something that costs around $10, provided they already knew what they were looking for costs around $100. And the commission on a $100 sale is (duh) 10x the commission on a $10 sale.

If you are considering selling something online, either for yourself or through an affiliate relationship (especially with an affiliate relationship!), take a hard look at the price point of what it is you want to sell.

Sell a book for $7 at 7% and you make .49 cents.
Sell a DVD player for $100 at 7% and you make $7.
Sell a computer monitor for $200 at 7% and you make $14.

It's as easy to sell a computer monitor to someone looking for a computer monitor as it is to sell a book to someone looking for a book.

From my years of doing the affiliate things, I've noticed the best-option price point is somewhere around $100. That is to say, the average consumer will spend $100 without an overdone amount of research and too much consideration. Anything much more than that and they're going to be more careful with the purchase, anything much less and the affiliate return won't be worth it the effort it takes to market and sell it.

By the way, my book review site, SFReader.com, is still up and running and doing around 500 visitors a day. In a typical month, I sell about 50 books. This earns me, on average, around $25. Too bad I didn't start with a computer monitor review site instead!

Dave Felts is an experienced web developer and Internet Marketer. Learn more about Internet marketing and online advertising at his site Bloggertizer.com - a free web site that helps bring bloggers and advertisers together for the benefit of both. You can reach him at webmaster at http://bloggertizer.com

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