The Secret of the Value Ladder
Imagine having an unlimited ad budget? What if every dollar you throw at ads would bring you back a multiple of 2x, 3x, 5x… Is this possible? Understanding what a value ladder is, how it works, and how you can implement it puts this goal within reach of any entrepreneur, as long as you’re willing to do the work.
A value ladder is a way to look at your business and structure it in a way where you lead your customers on a journey, giving them more and more value as they ascend, and being able to charge more and more money for your offers.
At the bottom of the value ladder is your front end offer. This is usually a low ticket offer intended to bring your customer through the door and show them the value you can offer. The customers that buy at this stage are now in a warm audience for other offers and are starting to develop a loyalty. You can now begin to show them other higher ticket offers that provide even greater value. Over time, you keep ascending the customers that keep showing interest, offering them higher and higher value with higher ticket items.
Why is the value ladder so important? It boils down to the lifetime value (LTV) of the customer. You must start thinking in terms of the long game. You don’t want to squeeze the most money out of your customer at the beginning. What you want to do is build customer passion and devotion. You do this by overdelivering at every stage of the ladder. As customers become more loyal and devoted, they are willing to spend more and more money with you. The amount they spend with you over the lifetime of the relationship is their LTV.
By maximizing the LTV of a customer, you can now think of the cost to acquire them (through advertising or other means) in terms of how it relates to their LTV, and not just to the front end offer you are selling. This in turn allows you to outspend the competition and basically gives you an unlimited ad budget.
Let me make this clearer with an example. Let’s say on the front end you are offering a book, on which you make $7 per purchase. Maybe you have some upsells and you average a $15 cart value per customer. If this is your whole business model, you can only afford up to $15 to acquire that customer (even less, since you want to be able to make some kind of profit). But with a value ladder, that $15 is just the entry point for the customer. You may even decide to give away more value at this point in order to get them excited about your products and build loyalty., Let’s say you do this, and actually lose $5 per customer on the front end.
But now these customers are on your email list and are excited about all the free bonuses you gave them. You now start to show them other offers that might give them more value. In the next step of your value ladder, you might offer them a course, that will really help them nail down the information that was in the book. Let’s say you charge $197 for this course, and that maybe 10% of users on your list opt to buy the course. You have now ascended them one step higher in your value ladder.
Of those that bought the course, a percentage of them may be open to 1 on 1 coaching to get over some hurdles they have not been able to surpass on their own with the ideas in the book and course. To these people you offer a 3 month coaching program at $9,997. And let’s say 5% of the users who ascended the last step are willing to pay for this.
How do these numbers work out? Each customer starts out costing you $5 at the first step. At the second step, you have increased average customer value by $19.70 (10% x $197), so now your average customer value is $14.70. At the third step, you increase their value by $49.99 (10% x 5% x $9997). So by step 3, each customer, on average is worth $64.69. You can now afford to spend some amount below $64.69 to acquire those customers. Imagine being able to outspend all your competitors to that degree on a $7 book purchase! This is the secret of the value ladder. Obviously this is a simple example. In real life, you may have a lot more levels in the middle, and the numbers will change based on the market and niche you are in. But I hope this gives you an idea of how powerful a value ladder can be.
So how do you go about implementing a good value ladder? The pros start at the back end. Since the goal is to sell X% of your customers on your highest ticket item, you would start there, and design how that funnel works, and the best way to maximize value. Then you would keep working your way down the value ladder, designing each funnel along the way.
For your front end offer, concentrate on providing the most free value up front. Give your best thing away here: that thing that the most amount of people will like, and will benefit from. This will get a lot of people through the door, and they will already be passionate customers since you have over-delivered on their first purchase. You can go ahead and add some upsells, downsells, and order bumps to increase the average cart value at this point. Ideally, you can cover all your acquisition costs with this first funnel. Then everything you sell them after that is pure profit.
Another key part of this is engaging them regularly via email once they are on your list. Make sure that you are providing some nuggets of value to them in these emails to keep them excited and engaged. Don’t be afraid to send a lot of emails. It is better to over-engage them and lose some people than it is to under-engage and lose the excitement and passion your customers have built up. This is the channel you will be using to show them your ascending value offers.
I hope this intro to the value ladder was helpful. It kind of blew my mind when I first learned about it and saw the potential in it. This article was just a small intro to the concepts that Russell Brunson goes over in his book Dot Com Secrets. If you want to go deeper on the subject, this is where I would start. I got so much out of this book, and will be revisiting it many times in the future. Or, if you prefer being involved in a community that goes over these concepts along with step by step coaching, the One Funnel Away Challenge offers a ton of value. Whether you look into any of those resources or not, I hope you really internalize the power of the value ladder and how it can transform your business. I will probably be diving deeper into different aspects of it in future posts.
