Tarzan Kay

<tarzan@tarzankay.com>

June 27, 2023

to you

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Subject:

the basic math of online business (and how to do it)


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Bit late on this one! ActiveCampaign was holding this email in custody, which is why you didn’t get a newsletter last week. Parental Advisory, maybe? ‍♀️

In the meantime, we officially launched Power: The Mastermind and you can find out more here. Apply by Friday to get a couple hours of additional 1:1 with me.

I’m feeling rant-y today. 

Maybe it’s because I’m reading Emily Lynn Paulson’s just released book, Hey Hun: Sales, Sisterhood, Supremacy and the Other Lies Behind Multi-Level Marketing

You could almost as easily swap out “multi-level marketing” for “online business” because there is so much overlap. 

Huge promises

Fake income claims

Annual indoctrination events

Selling the lifestyle instead of the actual product 

Another big overlap is how little attention is given to basic math. There’s so much focus on “selling the opportunity” that basic math is not only not taught, it’s actively discouraged. 

No wonder people are frustrated. No wonder they are confused about how to make their businesses work. 

So let’s talk about math for a second, and specifically, how to calculate conversion rates to forecast revenue—something not a single online course has ever taught me how to do.  

A subscriber wrote to me after last week’s email about the promotions tab:

“When you write about pulling back on persuasion and building trust, I want to do it but I wonder if that’s only for people who have the cash flow to dial it back. When it comes to email, I've been 99% nurture and 1% persuasion. I do the right thing at every turn, and mostly what it gets me is high costs, low sales and anxiety about money.”

Then she asked this question:

“When your list is 2000 strong and your average sale is $150, is it possible to be comfortable financially, without passing through a phase of heavy persuasion to build your cash flow?”

These are questions I get a lot, and the assumption is that my old business funds my current one, that I can do things the way I do now (less persuasion / coercion, fewer customers) because I have money in the bank to float me. 

This assumption is false. 

My salary is the same as it’s always been. A bit higher actually, to cover child and spousal support obligations in my divorce agreement. So far I’ve been able to cover my expenses without dipping into my reserves. There are two big reasons that this is possible for me, and I want to address them here, so you can take this back to your own business.

First: the false idea that you should do 99% nurture and 1% persuasion. 

The fact is, most business owners (especially those who have marginalised identities) have the opposite problem. Too much nurture, not nearly enough asking for the sale. 

Nurture is my #1 thing. All day long I tell my students that in order to be successful with email marketing, you have to nurture consistently. 

…but you also have to ask for the sale. 

Last month I sent 18 emails, 8 of which were promotional. I used both deadlines and discounts—something almost all businesses do. 

Not all persuasion is coercion. 

Not all selling is coercion. 

We need to show off the things we’re selling, say who it’s for, and why now is a good time to buy. That’s not unethical, that’s business. 

<< TAKEAWAY #1 IS TO ASK FOR THE SALE MORE OFTEN. >>

Even if you haven’t been perfect at nurture, ask anyway. Just know that those emails will perform better if your email list is warm and knows who you are, and who you can help. 

You do NOT need to send 99 nurture emails before you send a single sales email. And FYI, sales emails can nurture subscribers too. Here’s an example of an email that both nurtures AND sells

Second: the idea that selling a $150 offer to a list of 2000 can ever be a viable business.

It can’t. 

It’s just basic math. These numbers don’t add up to a salary, even for just one person. Even if you converted 2% of your ENTIRE LIST on EVERY PROMOTION and repeated this unlikely feat of marketing EVERY SINGLE MONTH, that’s only $6000 per month. 

>> Where is your ad spend coming from? (Necessary to get the 2000 new subscribers each month to keep that conversion rate consistent.) 

>> Where is the money to hire support? (Necessary to support all of your customers and have a life.)

>> What about the cost of ongoing training, software, processing fees, etc.? 

In order to make low-cost offers profitable, you need a large audience—which is typically built through ads, content creation and publicity. And even then, most online businesses have higher-ticket offers on the back-end that make the business profitable. 

For most businesses, especially in the first few years, that higher-ticket offer is either done-for-you services or a high-touch group program. 

Example: I can sell Copy Caboose for $300 because I have Email Stars, which will come back on sale in September at $2500 (or $1500 for returning students).

Higher-cost offers make the lower-cost ones viable. 

Low-cost offers don’t work on their own. Not even with a list of 10K+ subscribers. Not without a slick funnel and consistent ad spend, and maybe not even then.

<< TAKEAWAY #2 IS CREATE AND PRICE OFFERS IN A WAY THAT IS CONSISTENT WITH THE SIZE OF YOUR AUDIENCE.>>

If your plan is to start a $20/month membership, you’re going to need another source of income while you build your audience and your customer base. 

Low-cost offers are fine, but we need to be realistic about conversion rates when forecasting sales. 

I had to double-check, TBH, but I was relieved when I searched through my course content and found that there’s a very thorough lesson on launch metrics in Email Stars. I didn’t learn about this until I was nearly TWO YEARS in business(!), and someone held my hand and walked me through my first ever launch debrief—which, back then, was just a Google doc with about ten questions on it, and a very basic math equation. 

For the record (and it’s totally okay if you don’t know this), the math equation for forecasting revenue is:

[# of leads] multiplied by [average conversion rate] = predicted sales

For example:

1000 leads x 0.02 = 20 sales

The # of leads can sometimes mean your entire list (when your list has only a few hundred people) but more often it’s the subscribers who signed up to your pre launch content, like a webinar or challenge. Internally, we call that the “launch list.”

A good starting point for average conversion rate is 2% of your launch list. Don’t assume you’ll do better than that until you’ve gathered some evidence. 

The equation for calculating your conversion rate is:

[# of sales] divided by [# of leads] = your conversion rate. 

For example:

10 sales ÷ 1000 leads = 0.01 (a 1% conversion rate)

That can be a tough pill to swallow, so it’s no wonder so many business owners want to look away, cross their fingers and hope for the best. 

Don’t do that. 

If you’re just starting out, I recommend coming up with an offer that can actually sustain your life, even if you only make 20 or 30 sales per year. Think about a hybrid service / course model until your audience is large enough that courses can sustain you. 

The good news is: Selling services and having clients can be really lucrative and even fun! And it can fund your transition into a course-based model, if that’s what you want. It doesn’t have to be some laborious day job we’re all supposed to be running away from. It’s also a much simpler model you can do on your own, without much support.

And if you do start selling more leveraged offers, now you know the basic math, which means you can forgo some of the mandatory mindset work and self-flagellation when you don’t become an overnight millionaire. 

Keep going. Keep trying things. It takes time to find the right mix of offers that works for your business, but it’s absolutely possible.  

This public service announcement is brought to you by Tarzan Kay. 

XO

T-Boss

 

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