A few months ago, I was having dinner with Mark (that’s not his real name), a friend who had recently started an online marketing business in San Francisco. When I asked him how he was funding his new venture, he said “Vik, you’re not going to believe this story…”
Rewind to November of 2009. A few months before, Mark had left his lucrative job on Wall Street to set out on his own. At the same time, a large online marketing company called QuinStreet filed to go public on the NASDAQ. All of a sudden, Mark was bombarded with calls. All of his Wall Street buddies wanted the inside scoop on the industry. What exactly was online marketing? How did this company make money, and was there potential for growth?
Most of Wall Street knew nothing about the online marketing business, and they were hungry for any information they could find. After all, millions of dollars were on the line.
At first, Mark decided to be as helpful as possible. He took the calls and answered the questions as well as he could based what he knew. But a few calls in, he had an epiphany:
Why am I not getting paid for this?
Back in his Wall Street days, Mark had used a resource called GLG which connected Wall Street analysts to industry experts around the world. The analysts would pay the experts a generous hourly wage for their time and insights. So Mark called his contact at GLG, and requested to be put on the expert list for any online marketing inquiries. Before he knew it, Mark was charging $400 per hour for his time.
But it didn’t stop there.
As it turned out, several of the callers wanted more information. Mark’s general thoughts were helpful, but did he have any data or “competitive analysis” that they could use to better analyze the investment opportunity?
So Mark decided to write a detailed industry report on online marketing. Using completely public data, he put together a formal analysis, filled with charts, graphs, and numerous insights on the online marketing industry. It took him less than a week to complete. The price? $5,000 per copy.
To date, he’s sold eight copies. You can do the math.
Here’s the kicker: My friend was by no means an expert on online marketing. He had spent his entire career on Wall Street. Sure, he was a smart guy with a strong statistical background and the ability to learn, but that certainly didn’t make him an expert. But the fact that he could convince others of his credibility allowed him to charge huge amounts of money.
So what can we learn from this? Here are a few thoughts:
Perception is Reality: Sad as it might be, it’s important to give off the perception of success and expertise. This perception is what allows people to charge absurd amounts of money for their time and insights. You may be a real expert, but it means nothing if no one knows it. Therefore, it’s always crucial to develop, maintain, and grow your personal brand and make sure that the buyers understand your value.
Your Time is Valuable: Your time really is your most important asset. If people are using it to make money, you should figure out a way to get paid. It’s ok to give away a bit of your time to generate some upfront interest, but never let people take it for granted. Understand that they are getting value and that you need to be compensated accordingly.
Presentation Matters…A Lot: I’ve known Mark for awhile now, and I’ve always found him particularly impressive. He’s a terrific salesperson and is extremely entrepreneurial. He always brings a unique energy to any situation. These personality traits added a huge amount to his earning ability. Also, his industry report was very polished and professional. It was written in a way that Wall Street analysts appreciated and understood. Mark maximized sales by presenting his value in a package that made sense to the buyer.
Leverage Price Signaling: When I was studying marketing in college, we learnt about a concept called price signaling. The basic idea is psychological: if you charge more for a product, people will think that it has more value. If Mark had only charged $100 per report, the analysts would have probably thought that the information wasn’t that crucial. But at a $5,000 price point, Wall Street analysts saw this as a “must-have” product. $5,000 per report isn’t much money for Wall Street, but it’s enough to garner their respect and interest. Of course, you also make more money at a higher price point =).