Internet Marketers: Consider Loss Leaders

If you are selling your own product or service online, you are in a perfect position to use loss leaders to begin building your reputation and client base. Online buyers – especially in the internet marketing, blogging and social networking niches – love free stuff and killer discounts. In fact, if you are unknown or new to a niche you’ll have to work much harder to attract buyers if you lead with an expensive product or service. However, once you have established yourself a bit, you’ll have a much better chance of being paid your desired price. This is why loss leaders can be very effective.

For those of you unfamiliar with the term, a loss leader is a product or service that is offered free, inexpensively and/or provides clients with much more than they expect for the cost. Generally, loss leading is a good tactic if you are looking to establish long-term client relationships.

To use loss leaders effectively, the product or service you offer must be high quality. Remember that you are using this tactic to introduce yourself as an excellent provider so you really want to overdeliver. Whether you are writing articles, coding websites or providing a service, your primary aim is to make an excellent, unforgettable impression. “Wow” them.

Four Examples of Effective Loss Leaders

There are examples of loss leaders everywhere you look online. However, internet marketing is full of providers who are willing to sell their soul for $5 to grab new clients for the upsell. Intentionally under-pricing a product or service is always a gamble, but in some instances loss leaders can be a massively effective way to kick-start your online business. Here are just a few of those situations in internet marketing:

1. List-Building: A perfect place to use loss leaders is as a list-building tactic. Many internet marketers (including me) offer a free or very inexpensive report to folks who sign up to their email list. Once the buyer/prospect has opted-in, you then have opportunity to introduce them to your more expensive products and/or services. The idea is that by the time you email them these offers, they have already been impressed by the leader you provided.

2. Private Label Products: Another example of effective loss leading is used by Private Label Rights (PLR) content authors/sellers. They will put together a package of free/cheap PLR articles and offer it to a limited number of people. By providing fresh, original content, you can begin to build your name and brand in your niche. In this case, you want to be sure to do research first so you know what article topics will be attract the most buyers.

3. Joint Ventures: When you partner with someone who is willing to help advertise your product, you may choose to give that person a discount to offer their prospects. For example, they can provide a code to the buyers they attract that will take 25% off the purchase price of your product. While you are making less money on each sale, you will most likely increase your volume with the discount code.

Finding partners and creating joint ventures is a huge topic, but if you’re in internet marketing you definitely need to establish mutually beneficial business relationships. Forums and blogs in your niche are great places to find potential partners. Observe for a bit, contribute and once people are used to having your around you can begin making personal contacts.

4. Giveaway Events: Giveaway events provide one of the best ways to establish a client base. Though some require you to have a certain number of hungry prospects (in the form of a large email list, several thousand visitors to your website or blog each day, etc.), many just ask you to sign up, provide a free product and advertise the event on your website/blog. When someone downloads your product he/she must provide their contact information.

Many internet marketers build huge lists and/or strongly establish their brands by providing high-quality products to these events and then contacting the prospects shortly thereafter with higher-priced offers. The drawback to giveaways is that it is easy to get lost in the sea of downloads. For this reason, be sure you have a fresh, original product to offer or else you will just be wasting your time and effort.

The Freebie Fence

I’d like to touch on the two sides of the fence regarding freebies. On one side, there are folks who swear by freebies to hook customers. On the other side are marketers who believe that if you start off giving things away you are mostly going to attract a bunch of freebie seekers who jump ship when the time comes to pay for a product or service.

Marketers like Yaro Starak – he has a great blog and runs Blog Mastermind and Membership Site Mastermind – swear by free lead resources to introduce themselves to prospects. I use Yaro as an example because his free resources are always super-high-quality. He releases very thorough reports to build interest in his membership sites; not the fluff or teaser reports that many internet marketers offer. When you read one of Yaro’s reports you think, “If he gives this away for free, his paid content must be incredible.” And it is. By delivering on that high-quality promise, Yaro continues to build a base of trusting, satisfied clients who not only come back for more, but tell everyone else to do the same.

Though Yaro is intially losing money by giving away great resources that he could easily sell for $40 and up, his eventual profit is greatly increased. By providing such excellent content for free, he attracts tons of people, immediately impresses them and then offers them memberships to exclusive content sites at somewhere around $100 a month. Not only is he making more money on the membership sign-up then he would have by simply selling the report, he has created a recurring income. This is the best example I know of someone who effectively uses freebies as loss leaders to build a stable – and huge – income online.

Despite Yaro’s – and other marketers’ – successes with freebies, there are still folks that consider it brand poison to introduce yourself by giving away products or services. These marketers believe that by offering a freebie you only attract freebie seekers and/or those clients who are more concerned with low price than they are with quality.

The anti-freebie marketers are afraid of becoming known as low-cost providers, therefore never being able to price their products or services as high as they would like. While there is a very real danger of this, the trick is to only use loss leaders as the initial hook. Make it clear that this is a special, one-time-only offer and place your marketing focus on the quality of your product or service rather than the price. By doing this you can avoid being branded as a low-cost provider or – worse yet – not establishing yourself at all.

Doing the Loss Leader Math

Successfully using loss leaders comes down to a simple mathematical formula:

Low Price/Free + High Quality = Large Volume of Interested Prospects

And the more interested prospects you have, the more chances you have to make the sale. I am using the term “prospect” here in its simplest sense – a prospect is simply one person who has seen your offer. They haven’t signed up for or purchased anything yet. So here’s some real math for you:

Without a Loss Leader: You offer a $50 product and attract 100 prospects. Your conversion rate is a healthy 5%:

(5% of 100 = 5) 5 Sales x $50 = $250 Total

That’s not bad, but it sure could be better.

With a Loss Leader: You offer a $5 product and attract 500 prospects. Your conversion rate is the same 5%. Then you offer the 5% of prospects who converted to customers a $50 product and get a 12% conversion rate (remember, these are folks who are now your warm, satisfied customers rather than cold prospects):

(5% of 500 = 25) 25 Initial Sales x $5 = $125
AND
(12% of 25 = 3) 3 Follow-up Sales x $50 = $150
SO
$150 + $175 = $325 Total

That extra $75 might not sound like much, but you also have to consider that you now have happy customers out there who will most likely be ready to buy from you again. Also keep in mind that in most cases – especially if you have even a moderately popular website or you are participating in a giveaway event – you are likely to have a lot more than 500 pairs of eyes checking out your offer. Add another zero to your prospect count and it’s a whole new ball game:

$3250 – $2500 = $750!

Okay. Enough math. I think you get the picture. Using loss leaders to attract initial interest can definitely improve your conversion rate and – by extension – increase your customer volume. If you are going for one-time sales or jumping from niche to niche then it is unwise to sell your products at a reduced rate because you aren’t looking to upsell or offer more expensive products after you have established trust. However, if you are looking to establish yourself and your brand within a niche, then loss leaders are a great way to capture the interest of potential customers.