Everyday Cool Tips: How to Use Loss Leaders for Freelancing

Saturday, July 21, 2012

How to Use Loss Leaders for Freelancing

A loss leader is a product that is sold at a very low price (sometimes even below cost) to get buyers interested in taking home more.

You see loss leaders in grocery stores on a regular basis: the store advertises some absurdly low price on something that most people need ? maybe milk or chicken ? so that people actually come in. But very few people go into the store for just one thing. They?ll get cereal to go with that milk or some spices to put on that chicken. Those additional purchases turn a loss leader into a profitable marketing effort for the grocery store.

While we aren?t selling groceries, freelancers can benefit from the concept of the loss leader: selling something cheaper than the competition to get customers through the door can get you access to clients who you might not work with otherwise.

My Experiments with Loss Leaders

I?ve been using different marketplaces as an opportunity to try out the concept of loss leaders. There are a variety of sites where you can sell an inexpensive service, such as Fiverr. I came up with several tasks that I could do very quickly (so that I wasn?t actually taking a flat out loss to offer them ? I just don?t turn a profit) that lead logically into the bigger services that I offer. For instance, because I offer blogging services, I offer to come up with three custom blog post ideas that will bring in a ton of traffic.

I started out offering more and had to roll back what was on the table.

I?ve gotten enough new business through this approach to justify continuing the experiment, although I have found that I?ve had to carefully set expectations with what I?m offering for a certain price: offering too good of a deal trains prospective clients to expect that your full-price services are too expensive. I started out offering more and had to roll back what was on the table.

Loss leaders don?t have to be small services, either. A short ebook or access to a resource you?ve created is just as legitimate an option for a loss leader. You can also post your offer on your own website or through social media. Experiment and see what works for you.

The Danger with Loss Leaders

There is a danger with loss leaders: you can wind up actually taking a loss. It?s crucial to protect yourself when making an offer like this. You need to be very precise in determining what you can offer ? and for how long. Groupon and other daily deals are effectively offering sales as loss leaders and there have been a few horror stories about companies selling too many deals: a really effective sale can put a company out of business if too many people take advantage of it.

Put limitations on how many loss leaders you?ll sell. It?s perfectly reasonable to note that you can only afford to sell the service five times a month. It also makes sense to limit how many of your loss leader an individual buyer can have: you want to use this inexpensive service to introduce yourself to new audiences and you can?t do that if one person monopolizes your time. And if you see a problem, you can stop offering your loss leader immediately.

Loss leaders have proven to be a very successful strategy for some retailers, to the point where some states in the US (as well as other jurisdictions internationally) have made it illegal to sell products below cost.

Since we?re talking about selling services ? and it?s unlikely that you?ll be selling on the scale of some huge nationwide retailer ? you probably should be fine, legally speaking. However, I am certainly not a lawyer and can?t offer legal advice. You need to check your local laws yourself and, if you are at all concerned about the legality of offering a loss leader in your area, don?t do it.