So there’s this physicist – and I’m sure you’ve heard of him, he went by the name of Einstein – and he’s quoted as saying that a certain force is the greatest force in the Universe.
Do you know what the greatest force in The Universe (according to Einstein) is? What are your guesses? Nuclear power? Nuclear fission? Something beyond that?
Well, what Einstein thought of as the greatest force in the Universe was Compound Interest.
So What Exactly Is Compound Interest?
Let’s take money as an example. Let’s say you invest $1000, and you get an interest rate of 10% per annum. And yes I know you’d be lucky to get one tenth of that, but this is an example.
After Year 1 you’d have accrued $1100 (the original thousand bucks, plus 10 per cent interest). Now in Year 2 everything else being equal you start earning interest on $1100. So in Year 2 you’d earn an additional $110. And in Year 3 you’d start earning interest on $1210 (the original Year 1 figure of $1100 plus 10% of that).
That principle is called Compound Interest.
OK. That’s straightforward. How Do I Put It To Work In My Business?
Let’s take a fictitious online business that sells an eBook; let’s call the eBook ‘Einstein’s Business Guide To Compound Interest.’ And it retails for exactly 10 bucks.
Each month 1000 people come to the website where you are selling it, and 100 buy it. (And yep I know that 10% is a hefty conversion rate, remember this is just an example). So each and every month this website sells 100 copies of ‘Einstein’s Business Guide’ and makes a profit of $1000.
The Website Owner decides he’s actually going to apply some of Einstein’s Business principles and put the power of compound interest to work. So let’s say he does the following three things:
1) He increases his prices by 10% (from $10 to $11)
2) He manages to attract 10% more potential buyers (from 1000 to 1100)
3) He manages to improve his conversion rate by 10% (from 10% to 11%)
Let’s look at how this affects his bottom line.
Remember before he had 1000 visitors that converted to 100 buyers, purchasing a $10 eBook. With a resulting profit of $1000
Now though he has 1100 visitors, which converts to 121 buyers, purchasing an $11 eBook. Now his profit is $1331 – which is a 33.1% increase just as a result of these 3 simple changes.
That’s the power of compound interest. Let’s go take a closer look at strategies you could actually employ to implement similar strategies in your own business.
1) Raising The Price
For many reasons most people are reluctant to increase their prices. They think they are not going to sell as much. Or those customers will desert them. Or whatever.
Well there’s a strategy you can use to not only increase your price without losing any customers, but it may actually make you sell more of your product.
It’s called the Yes and Yes factor. And this strategy was introduced to me by my Mentor, Sean D’Souza, who you’ll find at www.psychotactics.com.
Rather than re-hash it, you should get the information straight from the horse’s mouth. So click here – read and watch. And then implement. It works like a charm.
2) Increasing The Number Of Visitors
Increasing the number of visitors to your website/sales page is also something that’s reasonably straightforward.
If you are running Google Analytics on your website – and you should be – you can see where traffic is coming from. And you should be able to clearly see what traffic strategies are working.
To increase the number of visitors to your site should be a simple matter of seeing which traffic strategy is most effective – and doing more of it. That’s not exactly quantum physics now, is it?
3) Improving The Conversion Rate
The definition of the conversion rate on any web page is the number of people who visit a web page and then take the action that the page is designed for (whether that’s to buy, or to subscribe, or other measurable action).
The simplest way to improve the conversion rate is to make the product more valuable to the potential customer. See Point 1 regarding the Yes and yes factor – a side benefit of pricing with this method is it makes your product more attractive.
The other way of improving the conversion rate is by split testing your sales page. Now split testing could be a whole series of articles on its own, but it basically means to create different versions of your sales page and send say half of your traffic to one page and half of your traffic to the other page.
And you simply see which Page has the best conversion page.
Some people split test to the nth degree – even going so far as to split test different sized ‘Buy Now’ buttons, or different coloured ‘Buy Now’ buttons, or the location of the ‘Buy Now’ button, or how often it’s repeated.
And though I think that doing all this can make a difference, there does come a point where you run into dwindling ROI on your efforts. However it’s relatively easy to split test the Headlines on your sales page, or the guarantee that you’re using, or different price points for your Yes and Yes factor, or the placement of images.
How Long Does It Take For These Strategies To Take Effect?
Pricing can be implemented in the time it takes to create a bonus for your Yes and Yes factor and rejig your sales page. So a few hours at most. Implementing changes to traffic and conversion rates can take longer – but can still be implemented relatively quickly.
For example, let’s say that you use video marketing as one of your traffic strategies, and you get 80% of your website traffic from posting one video article to YouTube a week, well a simple way to increase your traffic is to work a little bit harder and post two videos to YouTube a week for a few weeks.
And we already talked about conversion rates – and how the Yes and Yes factor might improve the conversion rate on its own (as well as increasing the price). How’s that for a Win-Win scenario?
What Other Factors Can I Work On To Get Compound Interest Working In My Business?
There are other factors you can work on, but the three I’ve outlined are the Big Three.
And you can take them further.
For example pricing. You can create an ‘upsell’ product – let’s say Einstein’s Business Guide Workbook, which is a Video and PDF Tutorial/Training package. If you price it at $97 and get say 5% of people who bought Einstein’s Business Guide to buy the upsell, then you just made approximately $600 more profit. (121 buyers x 5% x $97).
Adding that into the equation brings you close to the $2000 per month mark – which is an increase of nearly 100%!
And you can work on traffic strategies too; maybe see if adding a Facebook Fan Page will add traffic to your web site/sales page. Or try leveraging the power of Twitter.
The point is to always be looking to increase traffic, increase the conversion rate of that traffic, and increase how much those converted visitors buy. If you keep working on just that, the power of Compound Interest will increase your bottom line faster than you would believe possible.
1) Einstein said Compound Interest was the greatest force in the Universe.
2) By making small but significant changes to areas of your business like pricing, traffic and conversion rates, the compounded effect of those changes can make a big difference to your bottom line.
3) You should always be looking to tweak your strategies so that you are on an ever-upward arc.
Go read the article I linked to. Here’s the link again:
Then think how you can incorporate Yes and Yes pricing into your business. And implement it.
Then analyze your traffic and work out where most of it is coming from. And work harder to improve the traffic flow to your website.
The go to work on split testing your sales page and try and get your Conversion rate up.
When you’ve successfully done all three things, go back to the start and repeat the process.
If you’ve got any questions, please either use the comments form on the Website, or leave me a comment.