Weigh a downsell against raising the core price

1. The question, and how to decide it

In one example, a business owner who sold business-opportunity products raised this question, it is thought a while back. Of the people her team got on the phone, 40 percent were unqualified. Should she offer those people a downsell, to win back some of the money? It is a reasonable question, though a share that high comes with other problems tied to it.

The case shows how to reason about decisions of this kind, which count among the real calls an owner has to get right. The argument: if you do not understand trades like this one, you will keep failing to see things as they are. You will be baffled that what you want never happens, you will predict badly what comes next, and each blow will land as a surprise. With good pattern recognition the outcome is plain before it arrives, and the more outcomes you can see in advance, the fewer doors you have to walk through to learn them. Some experiences are not worth having.

2. The worked case

The case is hypothetical throughout. The business sells a $10,000 core offer and is weighing a $2,000 downsell. Assume it has the capacity: say it is a course, with no limit on how many can take it. Assume a base of 100.

In the case	Qualified	Unqualified
Share of the 100	60 percent: 60 people	40 percent: 40 people
Offered the product	75 percent, 45 of the 60	30 of the 40
Closed	25 percent, 15 of the 60	30 percent of those offered, 9 of the 30
Price	$10,000 (the core offer)	$2,000 (the downsell)
Revenue	$150,000	$18,000

The downsell closes 9 out of the 30 offered. It is handed the higher close rate on purpose, which is not even realistic.

So the question becomes whether all that extra effort is worth a 12 percent rise in revenue. There is, admittedly, an argument for it.

If fewer are unqualified. Forty percent is an absurdly high share. If it were, say, 20 percent, the case gets sillier still: a 6 percent rise in revenue.

3. Compared to what: a higher price on the core offer

The choice is not only whether to add the downsell. It is what the downsell is being set against. If a 12 percent rise is the goal, would it not be simpler to put the price up by 20 percent?

• Say the price moves from $10,000 to $12,000, and the close rate slips from 25 to 23 percent.
• You close fewer: 14 rather than 15.
• Fourteen sales at $12,000 is $168,000, which equals what the core offer and the downsell brought in together.

Then add more. Say the phone team takes the 40 percent of its capacity that went on unqualified calls and puts it into working your pipeline instead, following up more of the leads you already have in the time that frees, probably. That makes $192,000 the better option on the net, and it comes with less complexity and a clearer message, and is better for the brand. It is, admittedly, a question of how to spend resources that are limited.

4. The cost a revenue figure hides

This is opportunity cost. One of the big mistakes owners make, in the view here, is to treat a decision as though nothing else competes with it: this could bring in more money, so we should do it. The answer is to ask what it is being compared with, and what it costs besides money: added complexity in running things, the hassle, time, energy, and a whole team pulled away by the new thing. Is all of that worth 12 percent more revenue?

Take the counterargument you could make: if you ran at a 12 percent profit, the extra 12 percent would double your profit. The answer is that the other option would make more than that. Is something that improves a 12 percent profit worth doing? Absolutely. Is it the best thing you could be doing? Probably not.

5. What happens on a real phone team

The ideal is that unqualified people never get onto a call at all. If 40 percent reach the phone without qualifying, the answer is to add more friction. Setting a bar before anyone reaches the calendar, and adding friction even when leads cost more, are sections 3 and 8 of SOP 208 — Set prerequisites, raise lead quality and add friction.

Here is how it tends to go in practice; anyone who has run a phone team can say whether it sounds familiar. You tell the team there is now a $2,000 offer beside the $10,000 one, for anyone who cannot afford the larger. A rep is with a qualified prospect, offers the $10,000, meets a little resistance on price, and drops at once to the $2,000. Suddenly far more $2,000 sales arrive, and the downsell looks like a success. Then you see that the $10,000 sales have fallen by 20 or 30 percent, because the reps now keep a fallback ready for the moment anyone pushes back.

Why reps do it. What rewards a salesperson most is not the money but hearing yes. Salespeople, like owners, would rather be told yes than earn more, so they drop the price. That is given as the same reason most owners reading this are underpriced: they dread being turned down by two prospects in three, or three in four, when they could still earn more from fewer customers. Pricing properly means more people refuse than accept, and you make more money for less work. Because it is hard, most people avoid it, and so most people do not make money. The same point, about owners who give in to collect more yeses, is made in section 4 of SOP 82, the page on setting price from the pricing rules.

What it costs. So the downsell did worse than fail to make money: it lost money, because it turned sales of $10,000 into sales of $2,000. Each $10,000 sale you ought to have made that ended up as a $2,000 one costs you $8,000.

6. If you go ahead: sort people at the start

Sometimes it does make sense, and where it works, the move is to triage at the very start of the call. One example: ask whether the prospect has at least five locations. If the answer is no, the prospect goes into the package for businesses with fewer. Once the line is drawn and each prospect is either one kind or the other, you have different avatars, and each is sold the one thing that is right for that avatar.

This is deciding up front what is best for this type of person: going cradle to grave. One practice here: a prospect who does not buy the $10,000 offer is not sold something inferior. If the decision is made at the start, the other offer takes no extra time, and the rep is on the call anyway, triage is fine. But once a prospect is placed, they stay placed: you settle at the outset that this call is for the $10,000 offer and you go for that alone.

In most of those cases, that would be the hypothetical way to do it well; but, the view here is, the reality is that it is not worth it. Go and sell instead.

7. When a downsell does work

In experience here, a business is rarely built by a downsell, and especially not a service where people do the selling. The reason: unqualified prospects should for sure be fewer than qualified ones, so a downsell reaches a small share of people at a fifth of the price. It will not move the needle.

The exceptions:

• Selling and delivery both fully automated. When both hold, by all means add upsells and downsells, as in an e-commerce or software funnel you are running paid ads to. Examples: e-commerce, low-ticket information products, media and similar subscriptions, and self-liquidating offers at the front end, such as a webinar, that people are moved through.
• A high-ticket main offer that converts few, beside a low-ticket second offer that converts very many. Here the point has to be volume, five or ten times as much.

Why volume decides it. Where a person does the selling, only a small share of their leads should be unqualified, or their time is being wasted. Since it all comes down to volume, you would need five times the chances to sell the downsell for it to come out at least level with the core offer. Without five times as many unqualified prospects, it does not add up.

Flag: must a downsell be automated? Here, automated selling and delivery is one exception and a low-ticket second offer beside a high-ticket main offer is another. SOP 232, the page that drills the ways to raise what a customer is worth, section 1, says downsells work only where converting and delivering can both be automated and a very large number of people qualify. This page does not settle which reading is right.

8. What beats a downsell

A test of whether the argument has landed: with that five-times logic and a $10,000 offer, what would make the most sense? The answer: a $50,000 offer. A small number of buyers matched with a large price tag is where the numbers work. So spend the time the downsell would have taken on selling the $50,000 offer to the same share of people at the other end, the ones who can and will pay for the larger deal. It is simpler to screen the unqualified out, bring in more qualified people, and stop there.

9. Beside other pages

The frame this page sits inside is SOP 225 — Pick your war and check lifetime value is the constraint. Collecting information on each lead and clearing the unlikely ones off the calendar before the call is SOP 84 — Score and route inbound leads, section 1. Trying to close prospects who fall short anyway, as practice, is section 4 of SOP 98 — Qualify with the four-letter test; its tension with keeping them out is flagged in section 9 of SOP 208.

Flag: whether to downsell the unqualified at all.

• SOP 72 — Generate tiers and downsells from the quality vectors, section 7: sell the cheaper quantity or quality versions only to people who fail to qualify for the main offer, and never to someone who qualifies. That protects the main offer and still collects the extra cash, and these downsells tend to add little operational drag.
• This page: the rule about qualified prospects is the same (section 6). But where people do the selling, the view here is that a downsell to the unqualified is not worth it: the added revenue is small beside the complexity and time it takes, and the preference is to screen them out and sell a bigger offer.

What each costs: SOP 72's rule brings in the extra cash but adds the complexity and team time counted in section 4; this page's preference gives up the money a downsell would have taken from people who were never going to buy the main offer. This page does not settle which reading is right.

Flag: a lesser offer after a no.

• SOP 70 — Work the payment-plan downsell ladder, section 8, and SOP 73 — Feature-downsell customers before they cancel, section 3: a downsell is what you do when somebody says no, and you keep taking features out and lowering the price until they buy. In the case in section 2 of SOP 73, more prospects bought the expensive offer after the change, not fewer, and others bought the downsell besides.
• This page: a qualified prospect who does not buy the $10,000 offer is not sold something inferior. With a cheaper offer in reserve, reps turned $10,000 sales into $2,000 ones, and the $10,000 sales fell by 20 or 30 percent.

What each costs: the way of SOP 70 and SOP 73 risks the fall in this page's case, with reps reaching for the cheaper offer at the first resistance; this page's way lets a prospect who would have taken a cut-down version walk away with nothing. This page does not settle which reading is right.

10. What this page does not decide for you

• How the $192,000 is reached. Not established on this page.
• What lies behind the 6 percent. It is given for 20 percent unqualified, without the case's other rates restated. Not established on this page.
• Which offer the triaged prospects below five locations are sold, and at what price. This page gives no figure for the smaller package.

11. The checklist

Step	What to do
1	Before adding a downsell for unqualified prospects, work out the revenue it would add, as in the case in section 2
2	Set that against raising the core price, and against giving the freed phone time to the leads you already have
3	Count what it costs besides money: complexity, headache, time, energy, a distracted team
4	If many unqualified people reach your calls, add friction so that fewer of them get on the phone
5	Know the pattern: reps with a cheaper fallback drop to it at the first price resistance, and core sales fall
6	If you go ahead, triage at the start of the call; as a practice here, do not sell a qualified prospect something inferior after a no
7	Treat fully automated selling and delivery, or five or ten times the volume, as the cases where a downsell works
8	Otherwise, in the view here, screen the unqualified out and put the time into a bigger core offer

12. What this page does not cover

Price tiers and selling to richer customers are not covered on this page; they are SOP 224 — Set fractal price tiers and read price off the close rate, and SOP 229 — Sell to richer customers and rewrite what you measure.