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Demand Matrix

Lesson 36 from: How to Make Money

Ramit Sethi

Demand Matrix

Lesson 36 from: How to Make Money

Ramit Sethi

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Lesson Info

36. Demand Matrix

Lesson Info

Demand Matrix

This is something we call the demand matrix and I'm gonna walk through this with you because it's very good in helping you decide which of those ideas actually profitable here on the top left we have high end high price fewer customers so this is who's got an example of a company used the mike or you could do high end high price few customers go ahead consulting like what kind of consultant? I don't know like one on one consulting good money registration hardware west good. Uh okay that's let's go even higher end than that what's a high end handbag company louis vuitton beautiful. So this is a very high price few customers west elm or restoration hardware I would consider that a little different because a lot of people shot there like a lot. Louis vuitton is certainly we could all agree is high end right rolls royce, et cetera. Golden goose here in the top right high price many customers who's got an example here. Good apple perfect example high price lots of customers it's called gold...

en goose for a reason mass market low price many customers has got an example go ahead amazon, amazon okay amazon what else do you know where you guys eat for fast food around here? Curry up now? Okay, eyes in it isn't it amazing that in san francisco no one says mcdonald's hell's wrong with you guys. I mean literally the definition of mass market mcdonald's okay, so there's a lot of there's, a lot of mass market companies and finally labor of love low price few customers. What would be an example of this? Go ahead uh, most of the ideas that we come up thank you very much. Thank you. That is perfect. Exactly. So let's dig into that for just a second. So I talked about the's coaches, right? Who like they come up with these ideas and they're like, yeah, I'm going to help all these people but what they did was they focused on what they want. They said I want to start an online business because I want to have passive income I want to work from the beach I wantto sell while I sleep they never stop to think about their market we call that the ii syndrome and that's what most people start off doing if anyone has ever talked to a fourteen year old girl you know that they love to say the word I I want this I want that and that's ironically, what most entrepreneurs do too I want this I want that not what does my market look like I'm gonna tell you about a labor of love product that we created that was a huge failure we uh several years ago I had to get my own health insurance and it was actually really hard I I thought I'm uneducated guy could figure this out you know? I'm like sitting there researching stuff I don't even know what copay means and I'm looking through all the stuff and it was very difficult talking about six months to figure out and I said if I'm having trouble like this other people are definitely having trouble so we decided to create a course around this I will teach you to be rich guide to health insurance and we're like this is going to be huge and we actually we spent months we built the product the product exists we actually tested it with paying beta users they paid to test and, uh we discovered that nobody really cares they had told us they cared like you health insurance I hate my health insurance but when it came to actually using the material and changing their health insurance it just wasn't that big of a pain point for them they didn't really care similarly we created a course called screwed strategy this was when the economy was tanking nobody wanted to learn about starting a business or investing they just wanted to save money so I created a course I was like, yeah, this is gonna be great it was like eight bucks a month very inexpensive great tips and each month, I guaranteed you that you would save weigh more than the price of the course. Does anyone know why it didn't succeed? Because people had to pay for it? Um, yes, people had to pay for it, but somebody other courses, I charge a lot more, and so people have to pay for those why didn't screwed strategy work? I mean, you're trying to get people to save money, and you're charging them like I want to be a scrooge, I just won't pay you. First of all, the name was horrible, but that's not all. I mean, look, there's a lot of names that make no sense, but they do really well, the fact is, in this market, people who want to save money don't want to pay to do it, even though logically, I'm like you're saving thousands. Of course it makes logical sense, but doesn't it make logical sense to give people a workout routine and say here, if you do this, you'll be successful? Course, it's logical, and then nobody does it, so we got to go deeper and so labour of love is where most of your ideas will start off. Um, friend, over here, who has the nonprofit idea do nonprofits have the ability to pay? At one end of the market? Yeah, but most of them know, okay, so most of them know we're using something right now we call the pay certainty technique, and it allows us to quickly diagnose if the market has the ability to pay or not. So we asked two questions. Do they have the ability to pay and the willingness to pay today of the ability? Maybe, maybe not. Probably not willingness willingness is usually harder than ability for most of them. Okay, so your answer is no, like candidly, nonprofits are a really hard market to go after because they don't have the ability to pay most. We don't have any money, and even if they do what they say you can you give me a discount? We're a non profit, right, bro bono pro bono. And this is what happens when you start targeting people who don't have the ability or willingness to pay. For example, um, if I were creating, if I were doing a fashion site like I was going to show men had a dress better. Okay, so that's like a nice e book, maybe I charge fifty bucks, maybe maybe a hundred bucks a month, whatever, and who's my target market is it college students? Did they have the ability or willingness to pay no, they don't care they're wearing hoodies not to offend any san francisco people in the room uh is it sixty five year old retirees? Do they have the ability to pay? I think so they have their money do they have the a willingness to pay? No, why not? It doesn't seem to be something that you maybe interested in. Yeah, just be very honest with they're not interested there's sixty five years old, they're not buying the latest fashions for the most part oh my god remit are you stereotyping older men to say that they're unfashionable? Kind of? But I'm also saying let's be realistic most sixty five year old guys are not going to pay for a guide on howto look super cool and stylish just not something that they care about at that stage of life thirty five year old senior executives ability to pay willingness to pay okay now it's okay to stereotype at this stage because you're going to go out and test it, okay, so that's ok? We're totally cool with stereotyping, gender, age, all that stuff for here we want to be very careful of steering clear of labour of love where you can't charge a lot and there's very few customers you want to think about where do you want to go here ok? And just to show you you don't have to choose one is not better than the other in fact we've done all of them. This is one of our courses six figure consulting system it's many thousands of dollars it's very high end it's invite on lee right it's it's exclusive golden goose find your dream job this is one of our courses it's again several thousand dollars high end but it hasn't pretty broad appeal because a lot of people want to find a job here I will teach you the rich my book it's about ten bucks finding any bookstore and it really appeals to people cause everyone has questions about their personal finances sheet I'm saying but it took me many years to get here so why did we just go through this demand matrix? You have these twenty ideas you want to use your best judgment to plot them in somewhere here most of them will end up in the labor of love. Okay that's okay that's fine. It actually is a good thing it's like eliminate those slash and burn but some of these might end up in the very high end thing. By the way, if you were doing fitness you could have them up, you could have them appear in all of them you could create a fitness e book for twenty bucks you could create ah, high end products, a four hundred ninety seven dollars thousand whatever or even a subscription product. And then you could do one on one coaching or a really high end product like competition prep that would be like thousands of dollars makes sense. Okay, we'll have a business from the chat room and it might be fun to categorize it here. You have to help them out a little bit now. This this example comes from time capsule in the chat room and here is their business. They're creating decorative baby and wedding time capsules that you preserve your photos and memorabilia in for ten to twenty years and you reopen it years later and relive what life was like the year you were born or you were married. Now these were meant to be displayed, but they are an artistic luxury gift. Who's got an opinion on this. I think it's either a labor of love or high end like perhaps if you position or it could be high end but otherwise it's just going to be terrible, very good, I think I think you're right on that, by the way, it's not rude to analyze these things were not emotionally connected to the ideas at this stage we're just being ruthless like we're being scientists, okay? Where do we think it fits and I appreciate your candor because it would be easy to say oh, that sounds like a great idea that's what everyone says to you they're all lying they're lying to you they're lying to themselves they don't want to say that sexually like really stupid they'll say stuff like oh yeah like I could see myself buying that and then the next question you ask is oh, great well, I'm actually selling the first twenty seats just for fifty dollars, so would you like to get the first thought? Well, I have tio look at my find they don't care they don't want your idea. So here's what? I think I agree one hundred percent with you it's either high end or labor of love because there's relatively few customers for that so what we want to do is quickly find out if we're not sure I bet you this person has ten friends who were having babies right? Go and say, hey, what do you think about this already? Khun tell you they're going to go so it's great okay and see if they can pay it doesn't even matter if they charge fifty dollars or five hundred dollars at this point, any money anything is a sign of value but my guess is that most parents will say like I'll have to think about that anything short of a here you go I need this right now is enough let me say that again anything short of a here you go, I need this right now is a no common excuses people will say is I have to think about it sure, send me some more information. Uh oh, that sounds that's that's not quite right for me, but you should talk to this person or I could see how that would be helpful for blah, blah market that happens to not be me all of those are code for no, be honest with yourself. Business is all about being honest, okay? Yeah, just a quick follow up from that she said that she already has an online store, but the biggest business challenge had been driving traffic to the website and increasing sales right now so that ties in exactly we're totally alright. So again, where are we in this process? We're going to start getting a little bit more tactical, but we're doing that eighty percent of the work right now. Most people by now they would have come up with the idea spent a ton of time and money putting it on a web site and then they're waiting for traffic where's the traffic you didn't do any work, you did what you wanted to do, you didn't do what your market wanted to do, so we're spending the time upfront doing a little bit of homework before we go out to the market just to give you an example from our business um, before we launch one of our courses, we spend months in some cases two years doing our research, building it, testing it by the time we launch, we can often predict within point five point ah, point two percent whatthe conversion rate is going to be that it was a long time to get to not saying you have to be able to do that now, but you want to be able to virtually guarantee you have customers. In other words, you want to know that you've got at least ten people who are going to pay you who've already pre committed before you go live with a product. Otherwise, what are you doing? Business is not about hope it's about structure and systems it's about almost guaranteeing you're going to succeed. I liked to stack the odds in my favor, so now we've got a few ideas and we say, you know, I think I like the idea of going mass market just to start with maybe I'm gonna create a low end product, ten bucks, fifty bucks, something like that I like that because we don't yet have the skills to create like a multi thousand dollar course, so let's start and get our feet wet, okay, so what do we do now? Now we want to really understand what people have to say remember that word we used a few minutes ago sellout that word alone could be the difference between having a successful course and not so let me talk about how we do this we like to get at least twenty people I recommend you you don't even think about what your form out of your product is price or anything till you talk to at least twenty people you want to ask them what are their hopes, fears and dreams we'll talk about the exact way to ask them this what are their obstacles what's holding them back so earlier I asked you, why haven't you started a business already? And you know I'm filing that away mentally um this is a very important what have you already tried if let's say that we're doing a fitness product and you start talking to people they're like yeah, I really want to lose weight like I'm just not happy with the way I look and feel and you ask them, okay, cool, what have you tried so far? And they say, well, I haven't really tried anything, but I like I really want to do it what is your conclusion to that it's past that mike back there if they say I haven't tried anything yet but I really want to do what's your conclusion maybe they're not the target market or they need motivation there not serious you're not going to motivate someone stop using the word motivation you're not going to motivate someone who hasn't ever taken any action. The biggest thing you can do is find people who have already tried something showing that they have taken action, but for some reason it hasn't worked. Okay, now there are other ways around it, of course you can create a market you khun get new people who haven't tried anything before, but the easiest way is to find people who have already tried it because they've already demonstrated I'm willing to do this, so examples of that would be they've bought a book on nutrition or fitness um, they have a gym membership that's a huge sign they've bought that they've got a trainer even one year ago, they got one session with a trainer huge that is a great market versus I really should lose weight. I don't like how I feel after thanksgiving. All right, come back when you're ready, okay? We talked about stereotyping people, but then testing it. Um, let's say you're trying to help people started business. Are you helping men or women it's very different? If you're doing fitness or food, obviously the words they use are totally different style is obvious they're they're very different a lot of people get uncomfortable with this remains are you saying that like are you saying that women are only doing fitness because of this and that and are you saying that men only want to get fit because they want that yeah, I am at least at first and then I'm going to go test it and find out what people really want just to give you a sense let's pick to target markets let's say uh let's say we're doing fitness again it's easy one twenty eight year old male versus twenty year old man versus ah um thirty nine year old mother of two what's the difference in the way they described their fitness goals what is the young guy say let's ask some young guys in the room go ahead um so the young guy will say I want to get ripped you know I wantto see my abs or you know want to look good on the beach why I agree that all those things why uh so they can attract women good? Um oh my god I'm so offended I can't believe you just said that but you're also right and what about the thirty what I say thirty eight year old mother of two they want their body back oh, you could tell those guys in the finnish world they want their body back that's very subtle what does that mean? Body back a lot of women when they give birth you know their body goes through all these changes and, you know, to three years in they still haven't gotten back to where they were before they gave birth. When I've heard from my clients say this I just want my body back great great phrase and that is the difference between two different products you would create and two different marketing campaigns if you were to say to women I can help you get ripped I mean, would any woman in here want that now there are certain a certain subset of women who do want to get ripped ok and that's fine unless you're focused on that specific niche which would be at the high end probably most women are probably not looking for the word ripped what words are they looking for? Let's pass the mic to some women go ahead town tone good what else? Um energy to have our energy so good that's a classically feminine word energy very good let's get one more lose weight, lose weight very good lean tone these are all words that are classically feminine when it comes to the fitness industry. Similarly, when it comes to starting a business for someone in their twenties versus someone in their forties, those are gonna be different words as well forties is going to be work life balance I don't want to be pulled in all directions I put my time in at a job, but now I'm looking for something more fulfilling. These are really words that people really use this is getting into the nitty gritty. This is the immersion strategy you're immersing yourself in your market. Do you know how many entrepreneurs judas? Almost none? What do they do? They go, they come up with the I I I want to live on the beach, I want passive income, you know? And then they come up with some shitty book, and then they put it out there and wonder, why doesn't anyone come? They never took the time to do it right? This is how we go deep, so now we've taken our ideas. We've run them through several frameworks, ok? We're starting to see, all right, this idea has mass market appeal, but I don't really like these people like, I don't want that audience, okay, this one I like, but there's a problem because nobody's going to pay anything for it, I discovered, like, talk to twenty of them, they don't have any money, or they just they're not willing to invest in themselves, okay, but I found one, I think this is right, and how do you know what's, right? Because as you're talking to them, after you talk to fifteen, twenty, people, you, khun literally predict the next words they're going to use. In fact, you say, let me see if I'm reading you right, you blank, blank, blank, blank, blank, and they go, exactly. You're on the right track. Now. We're gonna go a little bit deeper, and then I'm gonna talk to you about the website, the email list and all that stuff.

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