Have you ever seen a headline like this?
How about this?
The business world is so saturated with people telling us that we can make millions without doing any work or that a five-figure launch isn’t that impressive or that if we just do XYZ, we’ll be stuffing our mattresses with cash.
Instead of alleviating doubts, that kind of messaging just creates doubts. Because if it were that simple to make a ton of money, wouldn’t you already be doing it? And you’re not…so it’s probably not that simple.
The problem with articles like is that they’re inspiring but they don’t cover the actual math of creating and marketing a digital product. They don’t explain why some people make $600,000 and some people make $6,000 so you’re left wondering if you should even bother trying.
Maybe you’ve even been reading my emails over the past couple years or heard me talk about how I’ve built a seven figure business by creating digital products and courses. And maybe you’ve thought, I want to do that. Or maybe you’ve thought, how is that possible?
That’s why I want to walk you through how to calculate the ROI of your digital product. By that, I mean figure out how much it’s going to cost you to build it, how much you could sell it for and how much profit you’ll make from it.
And when I say digital product, I’m talking about online courses that include modules that your customers can access any time from anywhere and may or may not include a live component (ie, Q&A calls with you, etc.).
I’m not giving you this equation so you’ll buy from me. In fact, even if you’ve already created a product or have bought a course to help you create one, I still hope you’ll use this equation to get some ballpark figures. I’m a firm believer that exaggeration and scammy marketing hurts us all and facts and math help us all.
So, if you’ve ever thought, am I going to make $5K or $500K off this product?, you need to do this ROI equation and figure out how much revenue potential your product has.
- Estimate how much your digital product is going to cost to make
Preferably, you go get estimates from resources like a videographer, copywriter, designer, etc. You also need to figure out the cost of getting email marketing software like ConvertKit or using a hosting product like Teachable or Thinkific.
Want the quick and dirty?
For a course (think fully produced video, professionally designed worksheets and sales page, copywriter, etc), assume $1000 per module (a module involves 1 video and 1 worksheet).
For a simpler product (like an ebook with templates and audio lessons), assume between $500 and $1500.
Keep in mind, you can do everything yourself for your course and it still be successful. It's your choice on how much you do or don't want to invest to make your product.
- Calculate out the value of what you’re offering
For example, if I was offering the contents of Brand Boss to a client on a hourly basis, I would charge them $4,000. In order to price your product correctly, you need to think about what your client would pay for the value they’re getting. If you’re creating a 6-month course on how to manage blood sugar through nutrition, you should calculate how much a client would pay for six months of nutritional counseling. If you charge $75 a session, you can assume the client would pay $1,800 for six months of weekly sessions.
- Multiply that price by .25. That’s the price range of your product.
So now you have a price of $450 for your nutrition program. In the case of Brand Boss that would be $1,000. When your product is actually developed, you can play around with the price to see what your customers respond to, but this will give us a ballpark figure to work with. (I actually sell Brand Boss for $595).
Remember, the point isn’t to sell your product for as much money as possible, or to price it low because you think people will be more likely to buy it. The point is to find that sweet spot price that communicates the value you’re offering without alienating the customer, and still supports the effort you put into making and selling it.
- Figure out how many people will buy your product
There are two groups of people you can sell to: people that already know you (followers) and people who don’t know you yet (newbies).
So first off, how many followers do you have? Assume that 5% will buy your product if you use conventional tactics like email, social promotion and a webinar and 10% will buy your product if you use more in-depth tactics like live events, one-on-one calls, etc. This could vary widely depending on how much you invest in marketing and the quality of your list, but it’s a good jumping off point.
TOTAL FOLLOWERS x .05 = BUYERS
BUYERS X PRICE OF PRODUCT = INITIAL LAUNCH CUSTOMERS
So let’s assume that you already have 1,000 people who read your content about how to manage their blood sugar. We’re assuming that 50 will buy the course at a price point of $450, which makes you $22,500. Not too shabby.
Once you subtract the cost of creating the product, you’re left with your initial profit.
- Determine acquisition cost of new customers
But what about people who have never heard of you? If you can reach these people, you can sell a lot more than 50 of your product, and therefore make more money.
This is the calculation that most people struggle with. Why? Because it involves a lot of unknowns and because it offers limitless opportunity, and opportunity is scary for most people.
So let’s break it down.
Your acquisition cost will depend on many factors:
- The tactics you use and how well they work
- The strength and expertise of your team
- The velocity of your brand
- The effectiveness of your content
- The industry you’re in
- The value of your product
For some businesses, the acquisition cost of new customers is less than a dollar, and for other businesses, it’s over a hundred dollars.
For example, assume that you’re going to pay 20% of the purchase price to acquire a new customer. So you’re going to pay $90 per new customer. If you want to make another $22,500 (50 sales), it’ll cost you $4,500.
Now assume your acquisition cost is only 1%. That means you’d only be spending $250 to make $22,500.
That’s why there is no simple answer to the question of “how much money will I make from a digital product?”
There IS an answer, but it’s complex. The only way to really figure it out is to get started, track results, stay flexible and keep experimenting.