Let me ask you a question. If you buy a new brand of deodorant from Amazon for $6.97 and love it, would you buy it again at the same price? I’m guessing the answer is yes.
If you buy a course to learn how to build a funnel for $1,197 and you love it, would you pay for it again at the same price? Probably not. Regardless of the quality of the education, the reality is that…
The market value of education, to the consumer, drops precipitously after it’s been consumed.
A skill you want and don’t already have has a high market value to you. A skill you have is valuable to you, but it doesn’t have a high market value to you, because you already have it. You may love the course or program so much that you become a big-time referrer and send everyone you know to go buy it…
But we can’t ignore that you’ll likely never buy that same course again. The people you refer might buy they’ll only buy it once.
One of the most important things to recognize early in your journey is that there are heads and tails. Understanding them and their different qualities will help you navigate the perils of scaling a business. Regardless of what you’ve been told, scaling a company is effin’ hard.
Heads and Tails
[You can watch or listen to the same concept here.]
Education and information appeal to new business owners and make great side hustles because they don’t have a high cost to create or deliver. The margins are larger and since education represents transformation, they can be positioned and sold at a much higher price, even to a stranger. They have a big head.
However, education and information are notoriously difficult to scale because they will rarely have repeat buyers of the same thing. They have a short tail.
The pitfalls of “large head, short tail” offers. There are two major issues education businesses run into. Both stem from the reality that the market value of education drops once it’s consumed by the consumer. Since there are few repeat buyers of the same product there are only two ways to sustain revenue:
Reach more people.
Create more products to sell
Extending your reach requires resources and generally gets more expensive the further you get from your warm audience. You have to spend more to reach more and the further the reach the more expensive it gets. Creating more products requires resources - not just to create them but also to manage, deliver on, and improve them. The cost and complexity of an education or information business can grow exponentially - to sustain itself.
That’s the standard education or information business cycle. Spend more to reach more people and create more products to sell to your existing buyers - it’s a double whammy. The cost and complexity increase and the workload grows until it becomes unsustainable.
…unless you have a legitimate tail.
Back to Old Spice. Unlike a course or a book, if someone likes Old Spice, they will buy the same thing at the same price dozens, maybe hundreds of times. If they buy it for a family member for Christmas, that family member might also go on to buy it dozens or hundreds of times.
It’s a “consumable”. The value to the individual consumer stays the same or increases after consumption.
There are some obvious benefits to consumables. For example, you can get one person to buy the same thing repeatedly, eliminating the urgency to create more products to increase their lifetime value. You can focus on improving a single product instead of managing multiple products. Upsells are much easier; nobody is going to buy a bundle that’s 6 of the same course - but people will buy a bundle of 6 of the same deodorant.
Consumables have a long tail.
There is also a downside to consumables. They generally have a manufacturing cost and lower margin, making it difficult to get traction and fund distribution or product improvements.
I think it’s important to understand the characteristics and function so you don’t make the same mistake many education and information businesses are making right now.
The Education Dilemma
The education dilemma is the byproduct of business owners wanting and realizing the importance of recurring revenue. And then shooting themselves in the foot not understanding the difference between education and consumables.
Many marketers are taking something that currently sells for $5,000 and offering it as a $ 297-a-month membership. The problem is that people were paying $5,000 for the outcome, now they’re paying $297 for the outcome, and canceling…because what they valued was the specific outcome. The nature of the product is educational; it has a start, end, and a desired outcome. That’s not a consumable.
Consider this.
If you’re willing to pay up to $5,000 to learn a skill right now and I offered to teach you the skill for $5,000 or less, you’d say yes. If I said “I’ll teach you that if you join my membership for $297 a month” you’d probably still say yes, but you’re only joining to get the specific outcome you’d pay up to $5,000 for - not for the membership. I would make $297 and you would learn the skill. Then, you would probably cancel. Why? Because you didn’t want the membership, you wanted to learn a specific skill - it’s not a consumable.
Packaging up and pricing non-consumables as consumables is the worst of both worlds. You’re selling something that people are not likely to re-purchase AND you’re not getting the margin you’d get if you were to sell it as education or transformation.
It’s bad business.
Education, information, and transformation can scale well if they’re free - largely because they’re free and platforms like YouTube are actively distributing (and paying for) good stuff. A killer YouTube channel or newsletter can help with the distribution of consumables without losing money. Mr. Beast will probably make hundreds of millions of dollars selling chocolate bars because he has distribution. (Note: Mr Beast is also entertainment, not education. Entertainment will generally reach far more people. If you are great at entertainment, the same principles apply but the scale is potentially much larger. Mr Beast has chocolate bars, The Rock has Tequila, etc)
But… they generally do not make for good recurring revenue products. The cost of distribution and the complexity of adding new products grow way too fast for most companies to survive.
Is there a way to get the benefits of selling education and the benefits of providing consumables? Of course. A lot of companies already do it.
Big Head, Long Tail.
If you want to start building toward it, it’s helpful to consider what business you’re in.
Distribution. Every business is in the same business whether they realize it or not: the business of distribution. High-ticket is popular amongst people just starting because the big head - the margin - helps with distribution. If you sell something for $10,000 and it costs $1,000 to deliver, you have $9,000 to spend on advertising or affiliates. If you sell something for $1,500 and it costs you $1,000 you have $500 to spend on advertising and affiliates. Advertising is distribution. Affiliates are distribution.
Functionally, High-ticket is not a strategy to put more money in your pocket right now, it’s a strategic way to fund more distribution.
Read the sentence above, again. If you’re selling high-ticket and don’t know this you’re in trouble. *The caveat is boutique or bespoke products not designed for scale. A single location with a line out the door and around the block is a different model than a company or product looking to expand.
Big-head, short-tail products can have a limited shelf life but they provide a potential shortcut or risk mitigator. A big head allows you to get distribution without losing money. It also anchors the buyers to a higher price, which comes in handy later.
The bigger the head, the longer the tail.
A bigger ticket price generally requires a specific outcome in the shortest timeframe possible for the right person. Generally speaking, the more specific the outcome, the shorter the timeframe for results, and the more niche the audience the higher price that audience is willing to pay. In other words, the things that allow you to sell at a higher price shorten the tail. Why would I pay a monthly membership for an acute problem I can solve with one visit?
See how they’re different things?
I believe that a long tail is the holy grail of business. The question is… how do we get enough distribution and cash flow in the door to support the company while the back end compounds? If you have unlimited funding, you don’t have to worry about it and can focus on making a great consumable. If you have unlimited time, you don’t have to worry about it, you can focus on getting distribution for free - like Mr. Beast. If you don’t have unlimited time or money, the model to work toward might be something like this:
High margin, big-head education on the front end.
Great consumable on the back end.
If that model interests you, the question is this: Can we create a high-margin product that becomes a distribution channel for the long-tail product?
If you have a long-tail consumable, does it make sense to put a big head product in front of it to increase distribution? If you have a big-head product, can we drop a consumable on the back of it to start building a tail?
Clickfunnels used to sell a giant educational package for $1,997 or something like that. Big head. Everyone who purchased it was prompted to set up a click funnels account and build funnels. Clickfunnels is between $100 and $300 a month recurring and you’re happy to keep paying the same price to continue using it. Long tail.
The educational front end covers the distribution cost and shows them how to use the software. Big head that encourages the use of the consumable.
Consumable back-end compounds each month. Long tail compounds.
In my mind, the big head is not about putting money in your pocket, it’s about the distribution and cost of goods. Its function is to cover the cost of distribution and the initial cost of goods. A quick example.
Let’s pretend you have a fitness app that’s $27 a month and it costs $55 to acquire a new member. You’re losing $28 per new member in the first month. To acquire 1,000 members, you’ll have to spend $28,000 - all out of pocket.
That’s okay if you can weather it. If it’s a good product, the rebills will kick in and you’ll end up in profit eventually. The problem is that most people can’t weather it and go out of business or have to slow down acquisition so they don’t.
In the example above, you have something you believe will be a great long-tail product. You’re $28,000 in the hole and have $28,000 of distribution - you took up $28,000 of total advertising space.
Now let’s pretend you decide to try a big-head product as the front end.
You decide on a one-on-one or small group coaching program for $3,000 which costs you $2,000 to acquire a customer. The same $28,000 would get you the same amount of distribution (it’s still $28,000 in ad space) but you’d be $14,000 in profit. The 14 people who enrolled in your program will probably end up in your $27 membership but that’s not the magic. The magic is that you can still sell the people who didn’t enroll in your coaching program into the $ 27-a-month membership - and you’re not losing money acquiring them.
That’s a big head helping feed and grow a long tail.
A caveat. Since the function1 of the “big-head” product - in this particular strategy - is distribution, the important thing is that you are making decisions that help you get more distribution. If you have the skillset or are in a position to get rapid distribution on YouTube or Instagram for free - you might be able to get the function performed without selling a high-margin thing. Hell, YouTube might even pay you for it.
Don’t get stuck in “I have to sell something expensive” mode - that’s not the goal. The goal is to get more distribution. Selling something at a high margin is generally the easiest way to fund more distribution - if you put the profits into getting more distribution. If a more efficient path reveals itself, don’t ignore it because you’re stuck on what someone else - like me - told you.
Now, to be clear… I don’t recommend going and changing everything. If something is working, don’t kill it because you’re stuck on what someone else told you. If you have a consumable that is compounding at a rate it can sustain and grow itself, creating a “big-head” product might be a distraction. If you have a “big-head” product that you don’t intend to scale - like a boutique, personal offering - you may not need a tail at all.
I believe it’s worth thinking strategically about what you’re doing and why. And remember…adding new stuff is rarely the most efficient path forward2.
The best pricing and delivery model will depend heavily on your unique personality and preference. If your strategy is aligned with your disposition, you’re going to end up just doing fine.
And again…don’t ignore reality because of what somebody else told you. If you’re advertising a consumable and breaking even or better on your acquisition cost, it doesn’t matter what I say “generally happens”. If you turned your $5,000 program into a $297-a-month membership and it’s working for you, it doesn’t matter what I say “generally happens”.
The most reliable information you have available to you is the data that you have gathered by engaging the field. Engage the field, get the data, and learn to trust yourself.
Live to learn. Give to earn.
Nic
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